Finer Points on Writing Option Contracts

I am liking the idea of writing calls and puts closer to expiration. The time decay is uneven. The closer to expiration, the faster the decay. When selling, time decay is good, just as it is bad when buying. So, the best annualized returns usually occur on the shortest dated contracts. I haven’t found an exception to this rule. Also, short dated contracts minimize exposure to dividends and their effect on contract prices. Plus, short contracts are more likely to capture short swings in stock price. For example, Apple and Armor Holdings, which I have held for 30 days, are falling apart. One week ago, they were looking good. The longer you hold the underlying stock, the more likely something fundamental is going to change. Oil could break down in the next 90 days as natural gas has (though not likely), but you will be locked up if you write for September, although, if it moves away from you (down if you are writing a call), the cost of closing out gets cheaper. I closed out of my GM options and reloaded at a higher price to capture some more premium to help offset the loss on the underlying. BTW: you saw that Jim Cramer came out with a BUYBUYBUY on GM on Wednesday (AFTER the 30% move)? He is predicting $40 in 12 months. Sounds like a good reason to be short to me.

I would like to be able to capture the most gain from writing in the shortest period possible. Even 0.60 per contract looks good when over just 10 days, on an annualized basis. Do the numbers in my spreadsheet and you will see what I mean.

What about the precious metals? I am thinking of selling half my PCRDX and VGPMX. I will definitely pull that trigger if gold hits $800 and maybe sooner. Precious metals have become very speculative meaning that when they go down, they will go down fast. I would like to capture some gain before then, and buy back in after the correction.