Systematic Option Writing: Hedging Made Easy?
The systematic writing strategy is an extension of the naked put strategy. It is a strategy that continues over time and is thus called a systematic writing strategy. The systematic writer maintains a portfolio of naked puts written on stocks he would like to purchase. The stock price at expiration determines the investors next move and these steps (outlined later) continue over and over throughout time. It is important to use this strategy only for stocks you would be willing to buy at the strike price regardless. The Systematic Writing Strategy This strategy is appealing in a number of ways. It allows investors to sell naked puts but adds a couple of new dimensions. First, it allows the investor to dollar cost average into the stock. Second, it allows for the sale of a covered straddle thereby giving the investor one additional option premium to further reduce the downside risk. The Systematic Writing Recipe: Step 1: Start by writing puts on half the amount of shares you are willing
