As any option trader knows, volatility generates higher premiums. Those premiums can serve as a form of self-generated dividends if a company doesn't pay one naturally.
When the market is behaving normally and we are in a flat or bull market, selling naked puts can be a solid, reliable, and relatively low-risk way to generate regular income. But what happens when we get blindsided by a market crash and stocks get put to us?
That's exactly why you cannot sell naked puts against stocks with wild premiums.
You must be highly selective. What happens if the stock is put to you? You'd better be happy owning it.
What stocks would you be happy to own? Those obtained at a value price.
The theory is that a value stock is already cheap and selling below intrinsic value and, provided the story doesn't change, having it put to you is a perfectly acceptable outcome.
You are also aided in your hunt by following as many stocks as you can over a long period of time. You will recognize trading patterns after a while. You will understand why the market perceives certain stocks the way it does and know the reason why a stock sells off, creating even more value.
Thesis
Barry Diller is a genius. He saw the monetization potential of certain types of internet businesses, as did his colleague Dr. John Malone of Liberty Media.
Diller created IAC/InterActiveCorp (NASDAQ:IAC) way back in 1986, before the internet really took off. He recognized the value of businesses with devoted memberships that generated robust cash flow.
Cash flow is what motivates Diller and Malone. It’s all about cash flow and not as much about managing earnings for Wall Street. That’s because many internet businesses are not consistent in terms of earnings. They are constantly repositioning during
