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Stock Thread (29 Viewers)

Bossman said:
Selling Puts

Dipping my toes in this. Seems like a good opportunity if you can find the right stock to trade as some giving much higher % than others.

I assume it's the risk factor. Anyone else selling puts to generate some income? Anything to share with a noob?
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The risk is just your stock takes a huge dump and you have to hold onto it far longer than you would have wished.  

Assuming you aren't selling the put naked which is on another level 

 
Bossman said:
Selling Puts

Dipping my toes in this. Seems like a good opportunity if you can find the right stock to trade as some giving much higher % than others.

I assume it's the risk factor. Anyone else selling puts to  generate some income? Anything to share with a noob?
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Yes, price goes up with risk and volatility (as well as time left though I assume you're talking about puts with same expiration). You get paid more for uncertainty and if the stock tends to move a lot which increases the chance of being exercised.Premiums also go up when there are catalysts like earnings. Premiums generally fall right after earnings are reported due to removal of uncertainty. When GOOGL was much cheaper, I would sell one immediately before earnings if it was a price I'd be willing to own at even for a trade. Another opportunity can be if you think a stock has sold off too much on an earnings disappointment or other news.

 
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Mystery Achiever said:
Yes, price goes up with risk and volatility (as well as time left though I assume you're talking about puts with same expiration). You get paid more for uncertainty and if the stock tends to move a lot which increases the chance of being exercised.Premiums also go up when there are catalysts like earnings. Premiums generally fall right after earnings are reported due to removal of uncertainty. When GOOGL was much cheaper, I would sell one immediately before earnings if it was a price I'd be willing to own at even for a trade. Another opportunity can be if you think a stock has sold off too much on an earnings disappointment or other news.
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So as long as the stock does not hit the trigger price, option can not be exercised and you keep the premium.

Just seems like easy money if you're confident the stock will not crumble.

 
culdeus said:
Selling the put without actually owning the underlying stock   
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I'm confused then.

As the seller of a put option, are you not the one forced to buy the stock if the option is exercised.

Why would you already own the stock that you are offering to purchase .... if it hits the strike price?

 
Bossman said:
I'm confused then.

As the seller of a put option, are you not the one forced to buy the stock if the option is exercised.

Why would you already own the stock that you are offering to purchase .... if it hits the strike price?
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Imagine you have amazon and sell the put naked for 1800.   You get 50 bucks.  Now the stock goes to 1400.  And you have to buy it at 1800 to sell it to a guy for 1400.  

https://www.investopedia.com/terms/n/nakedput.asp

 
Yes, selling naked puts can be dangerous.  You sell a put at a certain strike and you're on the hook to buy (at least 100 shares depending on how many option contracts you sell) at that strike regardless of where the stock ends up.  1800 strike X 100 shares ($180,000).  You'd need a margin account to cover this type of trade and your brokerage probably wouldn't allow it if you don't have funds to cover a large trade like AMZN.  

 
Bossman said:
Why would you already own the stock that you are offering to purchase .... if it hits the strike price?
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Lots of people that trade options do not own stock at all.  They aren't interested in owning the stock.  They just want to make money off the volatility of the strike price.  

With options think in terms of 100 shares.  If you're willing to own at least 100 shares of an underlying stock, then selling a put is a nice way of making a little while trying to buy that stock.  If you sell 4 puts then you need to be prepared to buy 400 shares of the stock.  If you want to buy 20 shares of a company then selling puts is not the way to go.  

 
OK, lets get specific

Hypothetical scenario

Stock A is selling for $7.50

This particular stock has a sell Put Option that pays 10% at a $5 strike.

I sell 20 put options (2,000 shares) and take the $1500 (would we call this "margin"?.

2,000 shares @ $7.50 = $15,000. .... and 10% of $15,000 = $1500

a) Does not hit strike and I keep $1500

b) Hits strike and I'm obligated to buy 2000 shares of said stock

.This sound accurate?

2 questions;

- Doesn't matter if the stock goes up or down so long as it doesn't go as low as, or below the $5 strike?

- If strike hits, am I buying these shares at the price on the date the contract started? ... or strike price? ... or something in between?

 
Bossman said:
OK, lets get specific

Hypothetical scenario

Stock A is selling for $7.50

This particular stock has a sell Put Option that pays 10% at a $5 strike.

I sell 20 put options (2,000 shares) and take the $1500 (would we call this "margin"?.

2,000 shares @ $7.50 = $15,000. .... and 10% of $15,000 = $1500

a) Does not hit strike and I keep $1500

b) Hits strike and I'm obligated to buy 2000 shares of said stock

.This sound accurate?

2 questions;

- Doesn't matter if the stock goes up or down so long as it doesn't go as low as, or below the $5 strike?

- If strike hits, am I buying these shares at the price on the date the contract started? ... or strike price? ... or something in between?
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You still have to be called to buy the stock.  This is actually somewhat unusual.  At least when I messed around with this the most often thing that seemed to happen was people just traded options all the time and they just expired.  Of course that was in a period of low volatility where that is the outcome you would expect.  In a #### hit the fan time period stuff can be bananas. 

 
Bossman said:
 Doesn't matter if the stock goes up or down so long as it doesn't go as low as, or below the $5 strike?- 
  ---Yes There is no reason for someone to exercise their right to sell you the stock for $5 if it is selling for more than $5

 If strike hits, am I buying these shares at the price on the date the contract started? ... or strike price? ... or something in between?
 --  You are assigned at the $5 strike price. However, your cost basis is recorded as $4.25.
       (From your example above I am assuming the premium you received was $.75 because you said 10% of 7.50 cost)
You can close out the position if you don't want to be assigned by buying it back, but you may incur a loss depending on where the price is relative to when you sold.
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Been a decade or so since I traded options, but I seem to recall most of the time they just expire and the cash gain or loss is settled up in your account. The broker I had at the time I think you had to elect if you wanted to receive actual shares instead of just settling up the cash because its a pain for brokers to move the shares around on expiration.

But it's been a decade so take that with a big grain of salt.

 
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 If you sell the option and it expires, there can only be a gain (your basis is zero). And you can not receive shares in lieu of the premium, which went into your account at the time of the sale. If the option does not expire, you pay cash for the shares and then can sell them if you don't want the stock.

 
Mystery Achiever said:
 If you sell the option and it expires, there can only be a gain (your basis is zero). And you can not receive shares in lieu of the premium, which went into your account at the time of the sale. If the option does not expire, you pay cash for the shares and then can sell them if you don't want the stock.
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OK, this is how I understood it then..

Which is why I was curious why someone would want to own the stock prior to selling the put option. I'm going naked.

If anything, seems a potential insurance strategy might be to also short the same stock and if the put sale triggers, buy the stock at the new lower cost ($5 in this case) and use the triggered put option to cover your short sale. Although this would not work should the stock price rise.

Either way I'm guaranteeing myself $1500 in margin.

 
Bossman said:
I sell 20 put options (2,000 shares) and take the $1500 (would we call this "margin"?.

2 questions;

- Doesn't matter if the stock goes up or down so long as it doesn't go as low as, or below the $5 strike?

- If strike hits, am I buying these shares at the price on the date the contract started? ... or strike price? ... or something in between?
Click to expand...
It is called premium, what you collect at the sell of the option.  This is yours to keep regardless of what happens.  

If strike is hit, someone who holds some or all of your 20 contracts could exercise and you'd have to pay for the stock at the strike price. Or they might not.  Most people who trade options aren't interested in owning stock.  They want to buy the option contract (you sold the put, they bought the put) in anticipation that the price of the stock will go down.  They speculate that it will fall below that strike for reasons they believe.  Then when the strike price is in the money (below the strike but before expiration), they sell the contracts to make a profit from the trade.  Not the sell of the stock, but the price of the contracts will be much higher than when they bought them.  So, for instance, they bought the put at $1 but was able to sell it at maybe $15. And stock never changed hands.  

The problem with selling calls/puts is that if your strike price gets threatened, the cost of getting out of your contracts goes up.  You may sell X number of contracts for a $400 premium.  You get the $400 but you might get nervous if the strike price is fast approaching and there is still a lot of time before expiration.  So you want to manage the position by closing the trade.  But instead of costing you $400 to close, it now will cost $1200 (or whatever) to close the position because the price of the option is much higher the closer to the strike it comes.

You sell 4 contract puts at .50 ($200 collected as premium, not counting fees/commissions) when the strike price is say 80% out of the money.  If the strike price creeps down to only 20% OTM the cost won't be at .50.  It may be 1.25 or so.  So to close your position because it's too close to strike, it will cost you $500 to be free and clear.  $300 loss.  If you want the underlying stock at the strike then that's fine.  Or you can roll it to another strike or another expiration date, maybe making a few more dollars.  I've rolled options to get out of the money to keep from being exercised.  It cost some of my premium but was worth just getting out.  

 
Mystery Achiever said:
 If you sell the option and it expires, there can only be a gain (your basis is zero). And you can not receive shares in lieu of the premium, which went into your account at the time of the sale. If the option does not expire, you pay cash for the shares and then can sell them if you don't want the stock.
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Unless it expires in the money.  If that happens he could be forced to buy the stock at the agreed strike price if exercised.  Then he could sell the stock at market or whatever cost it currently is.  If it expires out of the money then he made 100% on the trade.  That's what all option sellers want, unless they actually want the stock.  

 
Bossman said:
Either way I'm guaranteeing myself $1500.
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Yes, as in you either make $1500 in premium or get a $1500 discount on your purchase. Though, if the stock declines you could theoretically get a beter price.

Do you have clearance to trade options in your account? Not sure if you've already don e trades. There are different levels. You can sell covered calls at a lower level than puts, for example.

 
Jayrok said:
It is called premium, what you collect at the sell of the option.  This is yours to keep regardless of what happens.  

If strike is hit, someone who holds some or all of your 20 contracts could exercise and you'd have to pay for the stock at the strike price. Or they might not.  Most people who trade options aren't interested in owning stock.  They want to buy the option contract (you sold the put, they bought the put) in anticipation that the price of the stock will go down.  They speculate that it will fall below that strike for reasons they believe.  Then when the strike price is in the money (below the strike but before expiration), they sell the contracts to make a profit from the trade.  Not the sell of the stock, but the price of the contracts will be much higher than when they bought them.  So, for instance, they bought the put at $1 but was able to sell it at maybe $15. And stock never changed hands.  

The problem with selling calls/puts is that if your strike price gets threatened, the cost of getting out of your contracts goes up.  You may sell X number of contracts for a $400 premium.  You get the $400 but you might get nervous if the strike price is fast approaching and there is still a lot of time before expiration.  So you want to manage the position by closing the trade.  But instead of costing you $400 to close, it now will cost $1200 (or whatever) to close the position because the price of the option is much higher the closer to the strike it comes.

You sell 4 contract puts at .50 ($200 collected as premium, not counting fees/commissions) when the strike price is say 80% out of the money.  If the strike price creeps down to only 20% OTM the cost won't be at .50.  It may be 1.25 or so.  So to close your position because it's too close to strike, it will cost you $500 to be free and clear.  $300 loss.  If you want the underlying stock at the strike then that's fine.  Or you can roll it to another strike or another expiration date, maybe making a few more dollars.  I've rolled options to get out of the money to keep from being exercised.  It cost some of my premium but was worth just getting out.  
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Great info. Thank you so much.

:thumbup:

 
Mystery Achiever said:
Yes, as in you either make $1500 in premium or get a $1500 discount on your purchase. Though, if the stock declines you could theoretically get a beter price.

Do you have clearance to trade options in your account? Not sure if you've already don e trades. There are different levels. You can sell covered calls at a lower level than puts, for example.
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I've never traded options but they are available with my etrade account.

I'd prefer to be the insurance company vs. the one paying for insurance. Selling puts seems like my bag.

I'll insure your $7.50 stock for $5. Just give me $0.75 each. 

 
culdeus said:
You still have to be called to buy the stock.  This is actually somewhat unusual.  At least when I messed around with this the most often thing that seemed to happen was people just traded options all the time and they just expired.  Of course that was in a period of low volatility where that is the outcome you would expect.  In a #### hit the fan time period stuff can be bananas. 
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Oh yeah.  In this day and time a single tweet from you now who can cause a huge plunge across the board.  I stopped messing much with options at least until the trade war settles down some.  May take a new administration.  

 
chet said:
Boom or bust with this one:  CYDY.  Biotech drug maker awaiting FDA approval for new HIV drug among other things.  Here's an article from Seeking Alpha that came out last month.

FYI:  Stocks that trade @ ~$0.34 are more likely to go to $0 than $1.  I think this will be an exception.
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Color me intrigued. How did you come to discover CYDY? Happenstance?

 
Just jumping into the world of investing for the first time. Opened a fidelity account and added about a dozen things to the watchlist, a mixture of stocks, etf’s, etc.   One of the ones I watching is TVIX.  Can anyone here explain this ETN to me?  Why is it so volatile and why do the splits happen so frequently?  I’ve read the info on investopedia but most of it is like Greek to me.  Explain it like I don’t know anything about investing (because I don’t) please.   TIA. 

 
dkp993 said:
Just jumping into the world of investing for the first time. Opened a fidelity account and added about a dozen things to the watchlist, a mixture of stocks, etf’s, etc.   One of the ones I watching is TVIX.  Can anyone here explain this ETN to me?  Why is it so volatile and why do the splits happen so frequently?  I’ve read the info on investopedia but most of it is like Greek to me.  Explain it like I don’t know anything about investing (because I don’t) please.   TIA. 
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Bro, TVIX talk here is mostly schtick.  Get a good handle on everything first before messing with that stuff.

 
culdeus said:
Bro, TVIX talk here is mostly schtick.  Get a good handle on everything first before messing with that stuff.
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Cool. Thanks.  As I said I’m completely new to the investment world.  Appreciate the advice.  

 
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dkp993 said:
Cool. Thanks.  As I said I’m completely new to the investment world.  Appreciate the advice.  
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Go with low cost funds like Vanguard to start and don’t plow it all in at once with market this high, average in over time. 

 
GoBirds said:
Go with low cost funds like Vanguard to start and don’t plow it all in at once with market this high, average in over time. 
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Thanks for the advice.  Very much appreciated.  
 

I’m only dipping my toes in right now (couple grand) but was planning on some ETF’s, high dividend funds and maybe a few cheap stocks.   Thoughts?

 
pecorino said:
Color me intrigued. How did you come to discover CYDY? Happenstance?
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I have indirect professional involvement. 

PR from yesterday  which discusses the 8-week results of the patient with triple negative breast cancer who was enrolled on a compassionate basis--for those who don't "science", the results are very good and bordering on unbelievable.  A second patient will be enrolled on the same basis in the near future.

CYDY continues to await FDA approval for its combination HIV therapy--it should happen in Q1 2020.  They are also negotiating a distribution deal for the combination therapy which could be announced any day.  Stock has been under pressure in part due to selling by a disgruntled ex-employee who was fired for cause and is now selling shares.  

@Otis get on board.  I know you can't buy this at Merrill but you can through Ameritrade.  Open an account, transfer over some $$$ and shave years off of your retirement.

 
dkp993 said:
Thanks for the advice.  Very much appreciated.  
 

I’m only dipping my toes in right now (couple grand) but was planning on some ETF’s, high dividend funds and maybe a few cheap stocks.   Thoughts?
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Vanguard has a total stock market fund that spreads your risk over the full market essentially instead of the risk of an individual stock that may tank (or hit big I guess, but market at highs going into election year I’d be more cautious). I also have started using their target date fund that you base on your estimated retirement date and as you get closer the fund goes more conservative with more bonds. Fee is higher but still not bad. Don’t have to use Vanguard, others have the same thing but I started following bogleheads.org that got me into it.

I’m no expert, a lot of guys in here smarter but that’s where I put my money. 

 
dkp993 said:
Thanks for the advice.  Very much appreciated.  
 

I’m only dipping my toes in right now (couple grand) but was planning on some ETF’s, high dividend funds and maybe a few cheap stocks.   Thoughts?
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With a couple grand I'd buy stuff that interests you so that you are motivated to keep learning.  That will pay off down the line much more than the gain/loss from 2k.  With a few exceptions (TVIX being top of the list) it should be open season on what looks good. 

 
Sand said:
With a couple grand I'd buy stuff that interests you so that you are motivated to keep learning.  That will pay off down the line much more than the gain/loss from 2k.  With a few exceptions (TVIX being top of the list) it should be open season on what looks good. 
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Learning is my main goal so that makes sense.  Thanks👍

 
dkp993 said:
Cool. Thanks.  As I said I’m completely new to the investment world.  Appreciate the advice.  
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I'm going to tell you a simple secret that is easy to apply as long as you master it at the beginning of your investing journey.

It's similar to how Forrest Gump became a world class Ping Pong player.  And that is: Never take your eye off the ball.

For investing what that means is: Follow the Trend.  

If you can understand trend  - hell all you then need to do is get a monkey liquored up and have him toss darts at the stock page of the Wall St. Journal and you will be successful.

Picking winners has more to do with being on the correct side of the trend than anything else.

A high tide will lift all boats.  A low tide will drop them.

The same hold true for investing.  

The other simple truth is this:  There is no single simple diverse allocation model that beats the $SPY.

IE: Put your $ in the $SPY and get to work on learning about market trends.  In 25 years remember this lesson and invite me on your yacht in the Mediterranean.

 
chet said:
I have indirect professional involvement. 

PR from yesterday  which discusses the 8-week results of the patient with triple negative breast cancer who was enrolled on a compassionate basis--for those who don't "science", the results are very good and bordering on unbelievable.  A second patient will be enrolled on the same basis in the near future.

CYDY continues to await FDA approval for its combination HIV therapy--it should happen in Q1 2020.  They are also negotiating a distribution deal for the combination therapy which could be announced any day.  Stock has been under pressure in part due to selling by a disgruntled ex-employee who was fired for cause and is now selling shares.  

@Otis get on board.  I know you can't buy this at Merrill but you can through Ameritrade.  Open an account, transfer over some $$$ and shave years off of your retirement.
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I was interested too, interesting to know the company is headquartered in Vancouver, Washington, which is next to Portland. But, Merrill Edge won't let me buy it because of it's low market cap (115 MM). I haven't had an Ameritrade for years.

 
skycriesmary said:
I was interested too, interesting to know the company is headquartered in Vancouver, Washington, which is next to Portland. But, Merrill Edge won't let me buy it because of it's low market cap (115 MM). I haven't had an Ameritrade for years.
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I just found out that Charlie Sheen's "miracle drug" was PRO 140 aka Lironlimab.  I added to my position earlier today.  

 
chet said:
I just found out that Charlie Sheen's "miracle drug" was PRO 140 aka Lironlimab.  I added to my position earlier today.  
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You didn’t need to sell me more. In for 10000 shares at $0.27, bought last week. If it goes to 100 per share, I’m a millionaire. In my Roth—no taxes. C’mon honey!

 
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