Suppose one wants to invest in company X, whose stock is selling for, say, $100/share. What are the differences in profit potential between buying 100 shares and repeatedly selling a naked put at whatever the current price is?
In more detail:
Suppose the stock goes up. Then one lets the put expire (or buys it back) and sells another one. If the stock has weekly options it seems likely that selling puts will make far more money than holding the stock. The repeated put premium will almost always outpace the rate at which the stock rises. You might miss big jumps, but I suspect you will make up for it by the week-by-week profit.
Suppose the stock goes down. One should then buy the put back and sell another one at a lower price for a longer price period. For example, suppose the stock declines by to $95. One could very likely sell a put at, say $97 for a somewhat longer period that would cover the cost of buying back the original put. If the stock continues to go down, one would do it again, ... and again. Eventually one might find oneself short a rather long term put. (Of course if one just owed the stock one would be stuck with the loss.)
I suspect that there will be enough variation in the stock price that one can remain fairly even and not committed to too long a period. Eventually the stock will go up. One can then reverse course, buy back the longer term put and sell a shorter term one, perhaps at a higher price.
My question is whether anyone knows of any studies that have been done of this sort of strategy.
I would think that one would want to try this strategy primarily on stocks that one would otherwise want to hold as a long term investment.