Put Selling Versus Buy and Hold In VISA Stock

Visa Stock has been in my portfolio since 2009. It is interesting to contemplate that in 2009 I could have bought stock for $66.00 and sold that stock today for $128.00 which would have netted a return of $62 or $62,000 on 1000 shares of Visa Stock which is about the volume of shares I would have bought in 2009. But the problem with stock is knowing when to sell it. That is one of the principal reasons I turned to Put Selling decades ago when options were just getting started on most stocks. Knowing when to sell a stock is a difficult decision. If I had sold Visa Stock in December 2011 I would have sold for $103.00. That means I would have missed a further gain of 24% in just 8 months. If I had sold in December I probably would have thought I had done pretty well. I would have made $37 or 56% return over 3 years for an average gain of 18.6% annually. A very nice return to be sure. But within months I would have kicked myself as the stock gained another 24% to August 9 2012. Knowing when to sell stocks is tough, but knowing when to sell puts is not.

Buy and Hold Versus Put Selling in Visa Stock

Consider that since starting in 2009 I have earned $50268.50 through Put Selling. This is about $12,000 less than I would have made holding the stock for the past 3 and a half years. But I would have made $62,000 only if I actually sold out of Visa Stock. But with Put Selling against Visa Stock I have earned my capital gain up front, month after month. No need to guess when to sell out of Visa Stock, but instead through a consistent Put Selling strategy I have earned my capital gain in advance of having to sell out of any shares. This also means that each month I have more capital to devote to Put Selling Visa Stock. Presently in Visa Stock I have $120,000 tied to naked puts. But of that $120,000, $50.000 is capital earned through Put Selling trades over the past 3 years. The total non-earned capital in use then is just $70,000.00. As I continue to earn more capital gains from Put Selling against Visa Stock the amount of new capital required will continue to drop.

Buy and Hold and A Falling Star

What also annoyed me in the past was buying a stock, riding the stock up only to have the stock plunge like a falling star, in a matter of a few trading sessions. When this happens the stock which at one point I had a very nice profit in, suddenly has a much smaller profit. But with Put Selling I make my profit when I sell the naked puts. If the stock falls, I can apply a variety of rescue strategies and work the trade back into a profit, but the original Put Selling trade profit is mine the minute I sell my put options.

Visa Stock Stop Loss

I could have considered a stop-loss for Visa Stock if I was holding it, but over the past 3 years the stock has been quite volatile, making a stop-loss strategy difficult to implement. The Visa Stock chart below shows the stock over the past 3 and a half years. Each red arrow is a period when the stop-loss strategy would have executed and the investor would have been stopped out of his stock.

VISA Stock - stop loss

The red arrows indicate time periods when the stop-loss would have executed in Visa Stock

When using a stop-loss on some stocks, it should be used to protect a position once it is put in play. It can also be used to try to time getting out of a stock that has risen, before it begins to plunge. For example, read this article on using a stop-loss on Walmart Stock as it continues to rise. A stop-loss is not designed for investors to ride a stock up and down. It is meant to protect a position in a stock or to guarantee a profit in a rising stock.

By using Put Selling as an investment strategy, I not only never need a stop-loss, but I can use every dip in the stock as an opportunity to add to my gains in the stock.

Put Selling Versus Buy and Holding Stock

I prefer compounding my capital monthly and yearly in a stock like Visa Stock. For example in 2009 Visa Stock Put Selling,  I earned $4015.00. At the end of 2009 I had $62000 invested in Visa Stock, but $4015 of that was from my Put Selling income. In 2010 Visa Stock Put Selling earned $12090.00 and at the year-end I had $86250 of capital in Visa Stock, but again $12090.00 of that capital was earned income from Put Selling. In 2011 Visa Stock Put Selling earned $18096 and so far this year Put Selling has earned $16067. Each year these are realized gains from trades that have been closed for profits, rather than a paper gain built around a stock price that I may or may not sell at.

Put Selling Visa Stock Summary

Put Selling allows me as an investor to earn income monthly which can compound my capital quicker than holding stock longer-term and hoping when the day comes to sell the stock, it is up and will give me a nice gain. Instead I get my gain each month. At the rate of my present gains in Visa Stock, within another 3 years my earnings in Visa Stock should reach $100,000 from Put Selling.

While it is difficult to compare owning Visa stock against Put Selling, you can see from my example above that there are distinct advantages to Put Selling for income, rather than holding Visa stock for long-term possible future gains.