Hmm well $500 would tie up far too much capital to make any plays on.
To me, if I want to sell a stock within a certain price range, it makes a whole lot more sense to keep selling puts and reap the premiums until I get put the stock. Then, keeping cost basis in mind, sell calls on the stock until it's time to actually sell the stock.
Most things are a bit of a gamble at times. I consider these calculated risks, with ways out of a loss more than just plain buying and holding and sitting in for the ride.
I've read McMillan's options textbook and sold covered calls for several years. I've also sold some naked puts, although those have never been exercised.
The best reason we've found for selling options is to end the perpetual debate about rebalancing. In the past, whenever our rebalancing tripwire was triggered then we'd still kvetch about letting values rise higher (or sink lower) before rebalancing. Now when we reach that tripwire I just sell the appropriate call or put option, pocket the premium, and go surfing. No more debates, no more agonizing, and somehow that little bit of premium encourages us to do what we needed to do anyway. My Berkshire Hathaway puts expired last month and I haven't bothered doing the research to sell any more of them-- we seem to have enough money and no need to load up on more shares of BRK.
Before you go all Iron Condor on yourself, you might want to read Dixonge's experience on Early-Retirement.org:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682.html
He lasted for about 18 months before the volatility killed him:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682-8.html#post939013
Along the way he had a lot of good explanations for the way things were working, but at the end the markets managed to be irrational for far longer than he could maintain solvency. To his credit, he disclosed everything and admitted the problems when they cropped up...
I got hammered big time in Weekly Iron Condors on SPY during the government shutdown.
Too much Gamma/Delta and not enough Theta.
My wife says I have to stay away from options for a while.
Glad I'm not alone, as I mentioned earlier I got hammered with Iron Condors.
I set up an entity mid last year to do some trading that was my first mistake. Next I figured I would fund the account with 0% balance transfers from credit cards, I figured I would do much better than the old ING Direct Balance transfer arbitrages. That was mistake number 2.
My first trading strategy I tried was scalping Bid/Ask spreads on SPY, I didn't think the FX markets offered enough leverage that was my next mistake, I was doing ok, but got greedy instead of sticking to my trading plan and stopping out when I was ahead I let too many trades ride and wound up losing my small but steady profits to large losses.
I now decided that this was way too risky and needed another strategy, along comes the credit spread, wow what a home run I can pick which way the market is going to move then sell a spread collect premiums and ride the gravy train all the way home, then for no extra margin you can make it an Iron Condor by selling the credit spread on the opposite side of the market. I only traded SPY Iron Condors, you can earn about 10% to 12% a month so the gurus say if you play them right. But why just go for the 10% a month, they are weeklies, I can earn 12% a week, let’s sell an IC every week and just rake in the premiums. Oops, weeklies have a boatload of Gamma which can change your Delta much faster than your change in Theta. Crap let’s get in trouble because the government is going to shut down and the market is going to explode instead implode... oops the tea leaves were wrong.... or maybe I was holding the chart backwards, or maybe I didn't even look at one... Maybe it didn't even matter because instead of cutting losses I would roll my weeklies into the following week or a monthly IC and hope I can salvage the position, hey a dollar and dream it’s like a lotto ticket.... you never know...
Long story short I lost $32k between scalping and weekly and monthly Iron Condors between April and December of 2013, kicker is I only have about 112 trades probably not enough to get trader status and claim mark to market and claim it as a business loss so it is just a capital loss.
I have paid the credit cards back (this probably only set our FI goals back by maybe 2 to 3 months) and learned my lesson (you need a solid game plan and exit strategy, no more haphazard bullshit), now if that doesn't scare you just a little or some of those terms are foreign to you stay away from options trading or at least the more complex strategies.
Oh and by the way I'm not a rookie either, for the last decade I have been writing financial software on Wall Street, so if I can get wiped out doing this and you have less of a financial background there is a pretty good shot you can lose too.
Happy Trading :)
-Mister FancyPants