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training_data/relevant/text/aa9f51c7a8f81efe9ddc2b2dfb89e41674690e5e962e92fbcc816122b7c6f522.txt

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+Accepting Exposure   • 215
+$5.50 does not come along very often, so you should take advantage of it 
+when you see it.
+Of course, the absolute value of premium you will receive by writing 
+(jargon that means selling an option) a short-term put is less than the ab-
+solute value of the premium you will receive by writing a long-term one.
+3 
+As such, an investor must balance the effective buy price of the stock (the 
+strike price of the option less the amount of premium to be received) in 
+which he or she is investing in the short-put strategy with the percentage 
+return he or she will receive if the put expires OTM.
+I will talk more about effective buy price in the next section, but keep 
+in mind that we would like to generate the highest percentage return pos-
+sible and that this usually means choosing shorter-tenor options.
+Strike Price Selection
+In general, the best policy is to sell options at as close to the 50-delta [at-
+the-money (ATM)] mark as one can because that is where time value for 
+any option is at its absolute maximum. Our expectation is that the option’s 
+time value will be worthless at expiration, and if that is indeed the case, 
+we will be selling time value at its maximum and “closing” our time value 
+position at zero—its minimum. In this way, we are obeying (in reverse 
+order) the old investing maxim “Buy low, sell high. ” Selling ATM puts 
+means that our effective buy price will be the strike price at which we sold 
+less the amount of the premium we received. It goes without saying that 
+an intelligent investor would not agree to accept the downside exposure 
+to a stock if he or she were not prepared to buy the stock at the effective 
+buy price.
+Some people want to sell OTM puts, thereby making the effective buy 
+price much lower than the present market price. This is an understandable 
+impulse, but simply attempting to minimize the effective buy price means 
+that you must ignore the other element of a successful short put strategy: 
+maximizing the return generated. There are times when you might like to 
+sell puts on a company but only at a lower strike price. Rather than accept-
+ing a lower return for accepting that risk, I find that the best strategy is 
+simply to wait awhile until the markets make a hiccup and knock down the 
+price of the stock to your desired strike price.