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I’ve been trading options for close to a year now, still very much a beginner but at least have gotten comfortable with various strategies beyond just straight calls and puts (call spreads, put spread

I started an options thread about a year ago but did not have the discipline to keep updating it. Instead of hitting you with some theory, here is a play I'm considering for Tuesday. I like selling pu

As far back as I can remember, I always wanted to be a trader.

I’ve been trading options for close to a year now, still very much a beginner but at least have gotten comfortable with various strategies beyond just straight calls and puts (call spreads, put spreads, diagonals, etc).  Everyone’s risk tolerance is different but I’d say:

1) Avoid weeklies early on unless you’re willing to lose your entire trade.  A year in and I still hate them, even though you can make serious bank if you’re consistently right (or wreck your account if you’re not)

2) Buy time and stick with ITM or slightly OTM calls/puts (30-60 delta is generally where I live).

3) Make sure you have your exit rules in place before you make the trade, win or lose (i.e. x% stop loss, if you leave a runner on or not, etc).

4) Find a good backtester program (I highly recommend CML Trade Machine - it’s not cheap but if you really put in the work it’ll pay for itself and then some).

5) There’s tons of great (and not so great) follows on Twitter in this game.  You just have to separate the good ones from the frauds (of which there are a lot).

Good luck!

 

Edited by Ted Lange as your Bartender
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I started an options thread about a year ago but did not have the discipline to keep updating it. Instead of hitting you with some theory, here is a play I'm considering for Tuesday. I like selling puts on names that I want to own, especially volatile stocks for which premiums are elevated. Sometimes I buy stocks using limit orders but when the share price really moves, you can play it safer by selling puts instead. If you are put the stock at expiration then you get the name you wanted at the price you wanted. If not, you keep the premium. I'm looking at LAZR:

LAZR (Luminar) recently popped into the $30s after a SPAC de-merger one month ago when it was at about $10. Traded up to almost $40 and is now hanging around the $30s for the past couple of weeks. It's a technology play--could be $100 in a year, could go belly-up but the CEO is a tech wunderkind like Musk. Anyway, you can sell the February 26th puts with strike price of $25 for $2.50 each. That's a 10% premium on a $2500 investment just five weeks out. I would be happy buying it at $25 so if they get put to me, that's fine. Would be a long term play on what could be another tech startup that booms. Most likely, the puts expire and you get the 10% on principal. I'll probably place an order Tuesday to sell six of them, netting $1500 and tying up $15000. I don't sell puts on margin which is probably good since I could see myself over-extending on this one which is too much risk in this market. But I am sitting on some cash and would like to make it work for me. 10% in five weeks--yes, please.

I prefer shorter expiry options when selling since I want to be nimble but I did peek at the next expiration date which isn't until May. Those $25 puts are selling for over $5 which is ridiculously high or you could play it safer and sell the $20 puts for May with premiums at $2.25. That one is more than a 10% gain on options at the $20 level which are much safer but I'd rather only tie up principal for five weeks, not five months. Both of those puts look juicy to me.

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52 minutes ago, pecorino said:

I started an options thread about a year ago but did not have the discipline to keep updating it. Instead of hitting you with some theory, here is a play I'm considering for Tuesday. I like selling puts on names that I want to own, especially volatile stocks for which premiums are elevated. Sometimes I buy stocks using limit orders but when the share price really moves, you can play it safer by selling puts instead. If you are put the stock at expiration then you get the name you wanted at the price you wanted. If not, you keep the premium. I'm looking at LAZR:

LAZR (Luminar) recently popped into the $30s after a SPAC de-merger one month ago when it was at about $10. Traded up to almost $40 and is now hanging around the $30s for the past couple of weeks. It's a technology play--could be $100 in a year, could go belly-up but the CEO is a tech wunderkind like Musk. Anyway, you can sell the February 26th puts with strike price of $25 for $2.50 each. That's a 10% premium on a $2500 investment just five weeks out. I would be happy buying it at $25 so if they get put to me, that's fine. Would be a long term play on what could be another tech startup that booms. Most likely, the puts expire and you get the 10% on principal. I'll probably place an order Tuesday to sell six of them, netting $1500 and tying up $15000. I don't sell puts on margin which is probably good since I could see myself over-extending on this one which is too much risk in this market. But I am sitting on some cash and would like to make it work for me. 10% in five weeks--yes, please.

I prefer shorter expiry options when selling since I want to be nimble but I did peek at the next expiration date which isn't until May. Those $25 puts are selling for over $5 which is ridiculously high or you could play it safer and sell the $20 puts for May with premiums at $2.25. That one is more than a 10% gain on options at the $20 level which are much safer but I'd rather only tie up principal for five weeks, not five months. Both of those puts look juicy to me.

I have been doing a lot of this the last year or so as I see names I like at prices I don't necessarily want to pay.  I've been through DKNG, FSLY, SQ, FLGT, TDOC, DOCU, TSM, and PLTR more times than I can count. Premiums on some of those names have come down recently, as they've settled into bands. SQ especially. FLGT was by far the winner last I looked (3 weeks or so ago)

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10 hours ago, Sideshow Bob said:

I have been doing a lot of this the last year or so as I see names I like at prices I don't necessarily want to pay.  I've been through DKNG, FSLY, SQ, FLGT, TDOC, DOCU, TSM, and PLTR more times than I can count. Premiums on some of those names have come down recently, as they've settled into bands. SQ especially. FLGT was by far the winner last I looked (3 weeks or so ago)

Yes. I run what is called the Wheel. Sell a  put on a name I like, collect premium, usually one month out or less. If the stock price rises and the put can be repurchased cheaply, do it and close the position. Otherwise, hold to expiration and maybe you are put the shares. Ok, then sell a covered call for one month out or less at the same strike price as the put. In other words, you’re offering to sell the stock at the same price it was put to you. But in the meantime, you’ve collected two premiums, sometimes five to ten percent each. Can you lose money? Sure, there is always risk, but the stock has to really tank (I’m looking at you NERV) but mostly, it’s Ichiro. One single followed by another. 

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The only thing I have done so far are covered calls, and only a couple times.  I think they are pretty easy to understand.

My first one was a bad trade.  My second one, the options expired useless.

My question is how do you find the calls with decent premiums?  I seem to only find low premiums that barely seem worth selling.  I'm sure I'm just looking at the wrong stonks.

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For those considering the LAZR puts for Feb 26 with strike price of $25, they are now selling for $2.55 and could go a smidge higher since the stock is down a couple percent today. I sold six earlier today. GLTA.

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On 1/18/2021 at 9:03 AM, Caesar said:

The only thing I have done so far are covered calls, and only a couple times.  I think they are pretty easy to understand.

My first one was a bad trade.  My second one, the options expired useless.

My question is how do you find the calls with decent premiums?  I seem to only find low premiums that barely seem worth selling.  I'm sure I'm just looking at the wrong stonks.

You get bigger premiums on volatile stocks (beta above 1), that do not pay a dividend. My general rule of thumb is that I will buy a long term call on a stock that pays a modest dividend and for which the price of the call includes almost zero time value. As an example, I like JNJ for the next 18 months but 100 shares cost $16200. However, if you look to June 2022 and the $100 calls, they are selling for essentially $63. I say "essentially" because they are so thinly traded that volume is often near zero in a given day so you need to look at the bid/ask spread. Anyway, for $6300, I get the right to 100 shares of JNJ at $100 in June 2022. That means all of the juice of the stock is baked in to that price. It allows a leverage of that $6300 to get me access to 100 shares rather than the outlay of $16200. True, I do not collect the 2.5% dividends. Big whoop. I can leverage for almost 300 shares by buying three calls and tripling my returns (or losses).

It makes zero sense to sell a covered call on JNJ, to stick with that example. The premiums are super low so just hold the stock. But for a stock that you like which is highly volatile (say FSLY since it was mentioned above): Let's say you bought it at $85 last week, it is at $92 now and you've seen it go to $100 and back again a few times the past year. You could choose to sell it if/when it next hits $100. Or you could sell a covered call one month out with $100 strike, let's say. Those are trading for almost $7 so here you get a 7% boost in one month on a stock you wouldn't mind selling at $100 anyway. Lots of volatility, big premium, sell the call (assuming you do not want to hold long term).

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To add to my prior post, I just bought one call for LMT (Lockheed) for January 2022, strike price is $220 and I paid $124 for the call. You can see for yourself. The volume is one--that is me. Right now the stock price is $343. My call represents a price of $344 ($220 strike plus $124 for the premium). That's what I mean by the call contains all of the juice of the stock. The time-value of the call is practically zero.

Again, I'm giving up a 3% dividend, part of the reason the call is so cheap. I plan to trade it: Imagine if LMT goes up 10% which would be $378. Had I bought 100 shares outright, it would have cost $34400 and that gain of 10% represents $3400. In my trade, I outlay $12400 and a 10% gain takes the call to a value of about $158 or a gain of $3400, same as the stock. This is called "delta" and it's about 1 for this trade. Meaning almost 100% of the gain of the stock will be realized in a gain of the call. That would net $3400 on $12400 principal or almost a 30% gain. Leverage in action, risking less, making more. And I like LMT so if the stock price goes down, I'm fine buying another call at a cheaper price to lower my cost basis and can hold it for the year. 

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On 1/19/2021 at 12:37 PM, pecorino said:

To add to my prior post, I just bought one call for LMT (Lockheed) for January 2022, strike price is $220 and I paid $124 for the call. You can see for yourself. The volume is one--that is me. Right now the stock price is $343. My call represents a price of $344 ($220 strike plus $124 for the premium). That's what I mean by the call contains all of the juice of the stock. The time-value of the call is practically zero.

Again, I'm giving up a 3% dividend, part of the reason the call is so cheap. I plan to trade it: Imagine if LMT goes up 10% which would be $378. Had I bought 100 shares outright, it would have cost $34400 and that gain of 10% represents $3400. In my trade, I outlay $12400 and a 10% gain takes the call to a value of about $158 or a gain of $3400, same as the stock. This is called "delta" and it's about 1 for this trade. Meaning almost 100% of the gain of the stock will be realized in a gain of the call. That would net $3400 on $12400 principal or almost a 30% gain. Leverage in action, risking less, making more. And I like LMT so if the stock price goes down, I'm fine buying another call at a cheaper price to lower my cost basis and can hold it for the year. 

Everything you are saying makes sense.  How do you FIND them?  Do you just spend a lot of time scanning stocks you like and looking at the options chain?  Do you have a search or filter on your platform that you use to narrow down the field?  

I'm just trying to figure out how you randomly stumbled across a call option for LMT with essentially no cost associated to the time basis.  

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On 1/22/2021 at 7:20 PM, Caesar said:

Everything you are saying makes sense.  How do you FIND them?  Do you just spend a lot of time scanning stocks you like and looking at the options chain?  Do you have a search or filter on your platform that you use to narrow down the field?  

I'm just trying to figure out how you randomly stumbled across a call option for LMT with essentially no cost associated to the time basis.  

I look for names in lots of places and do a lot of due diligence. Truth be told, I would not be trading as much in the past year if it wasn't for Zoom. We have so many more meetings and I am in front of my computer so I have oodles of time to do research while sitting idly in a meeting.

1) I frequent a site that shows unusual options activity: For Example. If big plays are made on a name and lots of people are betting on one direction (a ton of puts being bought, for instance) then I may jump on board. Those tend to be short term trades where I'm looking to buy or sell into earnings. High risk / high reward.

2) I record and watch Options Action every Friday on CNBC. They usually cover three trades in a thirty minute episode. I can fast forward to hear their analysis and recommendations in about ten minutes. Big fan of Tony Zhang, a little less in love with Carter Worth and Mike Khouw is just meh. When they present a name and the rationale resonates with me and the price is right, I jump. Maybe once or twice per month I follow their lead. I've found them to be about as hit or miss as my own analysis so I don't lean on them much but they do a lot of research that is helpful. They tend to be more medium-term plays, like one or two months out. Not an earnings trade.

3) I visit this forum for fantasy football but some of the posts are specific to stock trading / investing and some of those folks really know what they are doing. For instance, if some FBG is pimping JNJ, just to pick a name, they are almost always talking about buying stock. I also look at the options' prices especially for names that fall into the categories I described earlier: a name I want to own, might pay a small dividend, low beta, reasonably priced options. And so I'd look for long-term calls that are about one year or 18 months out to expiration, I look for in-the-money calls that are maybe 30% - 40% the current share price and then I buy some if the price is right. JNJ right now is trading at $163, the options for one year out with strike price of $100 is trading around $64. That's just about the full stock price baked into the option premium. I'd rather buy 2 calls for next January for a total of $12800 (the equivalent of owning 200 shares) that invest $16300 outright for 100 shares. I lose out on the 2.5% dividend but I get double the leverage for a lot less capital. As the Options Actions slogan says: risk less, make more.

One caveat is that you really need to want to own a stock if you're investing in a long-term call. This is not a gamble or a trade--it is an investment and it carries more risk. For instance, if JNJ crashes to a share price of $100 (very unlikely but it could happen. What if it's vaccine ends up hurting people?) then my options are worth $0 come next January. Had I bought the stock outright, I'd still have $10000 of value plus I could hold the stock longer or even buy more to lower my cost basis. Plus I picked up a few hundred bucks in dividends. Point being, and the upshot is, I do not hold many of these right now. In fact, I sold AAPL and JNJ calls last Friday in taking profits. When folks talk about the market getting frothy and what a 20% haircut looks like, that means two different things if you're in stocks versus options. In stocks, you can wait it out, buy more. etc. If you're holding calls that are 20% in the money and the stock takes a 20% nosedive, that could be a completely wipe out. So be very careful, you have to be attentive (setting stop/loss orders is worthless on thinly traded options) and you need conviction.

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4 minutes ago, pecorino said:

I look for names in lots of places and do a lot of due diligence. Truth be told, I would not be trading as much in the past year if it wasn't for Zoom. We have so many more meetings and I am in front of my computer so I have oodles of time to do research while sitting idly in a meeting.

1) I frequent a site that shows unusual options activity: For Example. If big plays are made on a name and lots of people are betting on one direction (a ton of puts being bought, for instance) then I may jump on board. Those tend to be short term trades where I'm looking to buy or sell into earnings. High risk / high reward.

2) I record and watch Options Action every Friday on CNBC. They usually cover three trades in a thirty minute episode. I can fast forward to hear their analysis and recommendations in about ten minutes. Big fan of Tony Zhang, a little less in love with Carter Worth and Mike Khouw is just meh. When they present a name and the rationale resonates with me and the price is right, I jump. Maybe once or twice per month I follow their lead. I've found them to be about as hit or miss as my own analysis so I don't lean on them much but they do a lot of research that is helpful. They tend to be more medium-term plays, like one or two months out. Not an earnings trade.

3) I visit this forum for fantasy football but some of the posts are specific to stock trading / investing and some of those folks really know what they are doing. For instance, if some FBG is pimping JNJ, just to pick a name, they are almost always talking about buying stock. I also look at the options' prices especially for names that fall into the categories I described earlier: a name I want to own, might pay a small dividend, low beta, reasonably priced options. And so I'd look for long-term calls that are about one year or 18 months out to expiration, I look for in-the-money calls that are maybe 30% - 40% the current share price and then I buy some if the price is right. JNJ right now is trading at $163, the options for one year out with strike price of $100 is trading around $64. That's just about the full stock price baked into the option premium. I'd rather buy 2 calls for next January for a total of $12800 (the equivalent of owning 200 shares) that invest $16300 outright for 100 shares. I lose out on the 2.5% dividend but I get double the leverage for a lot less capital. As the Options Actions slogan says: risk less, make more.

One caveat is that you really need to want to own a stock if you're investing in a long-term call. This is not a gamble or a trade--it is an investment and it carries more risk. For instance, if JNJ crashes to a share price of $100 (very unlikely but it could happen. What if it's vaccine ends up hurting people?) then my options are worth $0 come next January. Had I bought the stock outright, I'd still have $10000 of value plus I could hold the stock longer or even buy more to lower my cost basis. Plus I picked up a few hundred bucks in dividends. Point being, and the upshot is, I do not hold many of these right now. In fact, I sold AAPL and JNJ calls last Friday in taking profits. When folks talk about the market getting frothy and what a 20% haircut looks like, that means two different things if you're in stocks versus options. In stocks, you can wait it out, buy more. etc. If you're holding calls that are 20% in the money and the stock takes a 20% nosedive, that could be a completely wipe out. So be very careful, you have to be attentive (setting stop/loss orders is worthless on thinly traded options) and you need conviction.

I appreciate the response.  I just found the barcharts website over the weekend as well.  Just about every stock I looked at that had a lot of calls written on Friday were up pre-market today.  I thought that was interesting.  I also saw the "unusual" options option, but did not visit that screen.  I will have to check that out as well.

I watched a bit of Tony Zhang over the weekend trying to learn some stuff, but they were talking way over my head.  I am a total beginner on options, and I will tread very lightly at this time.  I only applied to have access to covered calls protective puts.  Nothing earth shattering, but as I understand it, where most people start.  

That being said, I am only interested in doing that for stocks I am ready to own.  If I can find one I like, sell some calls and make some modest gains, I am good with that for now. 

Thanks again for the reply.  

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4 hours ago, pecorino said:

but some of the posts are specific to stock trading / investing and some of those folks really know what they are doing. For instance, if some FBG is pimping JNJ, just to pick a name, they are almost always talking about buying stock. I also look at the options' prices especially for names that fall into the categories I described earlier: a name I want to own, 

I have also been doing a fair amount of this, as the market keeps pushing higher.

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On 1/19/2021 at 6:26 PM, pecorino said:

You get bigger premiums on volatile stocks (beta above 1), that do not pay a dividend. My general rule of thumb is that I will buy a long term call on a stock that pays a modest dividend and for which the price of the call includes almost zero time value. As an example, I like JNJ for the next 18 months but 100 shares cost $16200. However, if you look to June 2022 and the $100 calls, they are selling for essentially $63. I say "essentially" because they are so thinly traded that volume is often near zero in a given day so you need to look at the bid/ask spread. Anyway, for $6300, I get the right to 100 shares of JNJ at $100 in June 2022. That means all of the juice of the stock is baked in to that price. It allows a leverage of that $6300 to get me access to 100 shares rather than the outlay of $16200. True, I do not collect the 2.5% dividends. Big whoop. I can leverage for almost 300 shares by buying three calls and tripling my returns (or losses).

It makes zero sense to sell a covered call on JNJ, to stick with that example. The premiums are super low so just hold the stock. But for a stock that you like which is highly volatile (say FSLY since it was mentioned above): Let's say you bought it at $85 last week, it is at $92 now and you've seen it go to $100 and back again a few times the past year. You could choose to sell it if/when it next hits $100. Or you could sell a covered call one month out with $100 strike, let's say. Those are trading for almost $7 so here you get a 7% boost in one month on a stock you wouldn't mind selling at $100 anyway. Lots of volatility, big premium, sell the call (assuming you do not want to hold long term).

My wife worked at STX when they went private and we have been sitting on ~400 shares (@ $2.20) the past 15 years. They spiked this week and she is telling me again, if it hits X, I'm selling. I keep telling her, if you're going to sell at X anyway, just sell calls, which is followed by me explaining the concept for the umpteenth time.  

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4 hours ago, Navin Johnson said:

My wife worked at STX when they went private and we have been sitting on ~400 shares (@ $2.20) the past 15 years. They spiked this week and she is telling me again, if it hits X, I'm selling. I keep telling her, if you're going to sell at X anyway, just sell calls, which is followed by me explaining the concept for the umpteenth time.  

Trying to explain this to a friend of mine.  If you have a price target in mind, then it seems stupid NOT to sell call options on it.

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4 minutes ago, Navin Johnson said:

It's basically free money

 

Agree.  He has been sitting upside down on shares of Carnival Cruise CCL for a while, and even calls way out of the money will slowly lower the cost basis over time.  If he isn't willing to sell and take the loss, at least make it work a little.

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Selling options is not free money. First, the share price of the underlying may drop in which case you get the premiums from the calls you sold but you're now holding the stock at a lower price. If you know that you want to hold, OK fine. Take the call premium and it's free money. Another scenario is that the price spikes again, far past the strike price of the call you sold. This limits your upside. In short, selling calls against a stock that you own is a conservative play. It minimizes a potential big swing in the positive (if the price spikes up) while also minimizing the pain of a big drop. Most people equate options with increasing risk but selling covered calls mitigates risk.

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1 minute ago, pecorino said:

Selling options is not free money. First, the share price of the underlying may drop in which case you get the premiums from the calls you sold but you're now holding the stock at a lower price. If you know that you want to hold, OK fine. Take the call premium and it's free money. Another scenario is that the price spikes again, far past the strike price of the call you sold. This limits your upside. In short, selling calls against a stock that you own is a conservative play. It minimizes a potential big swing in the positive (if the price spikes up) while also minimizing the pain of a big drop. Most people equate options with increasing risk but selling covered calls mitigates risk.

This is what we were referring to.  If you are going to place a limit order you are leaving the premiums from the calls on the table.

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21 minutes ago, pecorino said:

Selling options is not free money. First, the share price of the underlying may drop in which case you get the premiums from the calls you sold but you're now holding the stock at a lower price. If you know that you want to hold, OK fine. Take the call premium and it's free money. Another scenario is that the price spikes again, far past the strike price of the call you sold. This limits your upside. In short, selling calls against a stock that you own is a conservative play. It minimizes a potential big swing in the positive (if the price spikes up) while also minimizing the pain of a big drop. Most people equate options with increasing risk but selling covered calls mitigates risk.

Exactly.  I use it to mitigate risk in my portfolio because I have a higher tolerance for risk elsewhere than most.

gives me at least a sense of stability, even though I know what you are saying is 100% true.

Still... free money  🤣

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13 minutes ago, Sideshow Bob said:

Pretty sure I do this more than anyone else in the stock thread. I assume everyone here reads over there as well, so I don't know if there's any value in linking them out here. But I can if anyone is interested in ideas when they pop up.

Are you taking about selling puts? Love it. 

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I compulsively sell short term calls against companies I hold 100+ shares of, and then treat it like a dividend by reinvesting the premium back into the underlying when the contract expires.

So for instance last week I sold a call for DKNG around a week out with a strike price of $60 for $0.71 ($71) premium.  When the contract expired OTM I took that $71 and bought $71 worth of DKNG (roughly 1.3 shares).  So if I had 100 shares of DKNG I was now up to 101.3, almost as if I had a weekly DRIP dividend on a stock that pays no dividend.

I think this may have its place in a normal market but over the last year this has been a largely losing strategy for me.  Pennies in front of a steamroller, and all that, only with opportunity losses instead of real losses.

On just DKNG alone I bought it after the SPAC merger around $17 and sold $20 calls against it, then watched it run up to $40 at which point I had to watch 200 shares get called away at $20, missing out on the whole move.  I then bought again with a costs basis of $38 and held for a while, eventually selling $50 calls again it.  Those I watched get called away when the share price was around $65.

So selling the calls I make $17 here, $70 there, etc.  But all of those compiled profits get wiped out by missing out on one big move where I collected $50 in premium to miss out on a move in the stock that would have netted me $5000 by just holding the underlying.

Obviously you can sell calls on stocks that move a lot more slowly than DKNG and the like, but then of course your premiums are going to be pretty paultry and even low IV stocks that have been consolidating for ages can suddenly move on some big announcement (for instance AAPL a few months ago paid junk on premiums and then they had the stock split and people probably missed a $10,000 move for a premium that paid out a couple bucks if they had been selling calls on AAPL).

I tend to be much more heavily weighted in growth stocks than dividend stocks so it's "fun" to create those dividends on these stocks that don't pay them, but so far it hasn't been a money maker for me relative to what I'd have made just holding the underlying.

It certainly has its place, and I still keep doing it to a lesser extent, but as they say there's no free lunch and lost opportunity is still a loss imo.

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9 hours ago, KGB said:

More balls than brains...

Putting in an order for 

AMC - buy put $5.00 1/21/22

What did you pay to buy that put? I looked at them yesterday and thought they were overpriced. Don't you think that a decent chunk of Americans will have been vaccinated by the fall and heading to the movie theaters will be a buzz?

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I was looking at IPOD and IPOF, thinking I might buy one or the other. IPOF in the $15.20s currently.

Ended up writing IPOF 2-19-21 puts @$15 for $1.10. Assuming the bottom doesn't somehow drop out, I'll be pleased with either outcome.

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On 2/4/2021 at 6:46 AM, pecorino said:

What did you pay to buy that put? I looked at them yesterday and thought they were overpriced. Don't you think that a decent chunk of Americans will have been vaccinated by the fall and heading to the movie theaters will be a buzz?

I was betting on them to go down in the next year.

I wimped out and cancelled my order.  I wouldve payed $4000 for 16

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12 minutes ago, shades said:

Starting to dip my toes in this. Already made a mistake here and there but finding my way.

All my tests lost.  but they were only a week or 2 out.  I'm trying my first long term

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2 minutes ago, Ted Lange as your Bartender said:

ARK just loaded up the truck with PLTR stock today - bought 1.6M shares.  I would definitely give this more time

nice.  Im out till Jan 2022.  So, I can wait.  Thank you for the info!

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On 1/31/2021 at 12:21 PM, FreeBaGeL said:

I compulsively sell short term calls against companies I hold 100+ shares of, and then treat it like a dividend by reinvesting the premium back into the underlying when the contract expires.

So for instance last week I sold a call for DKNG around a week out with a strike price of $60 for $0.71 ($71) premium.  When the contract expired OTM I took that $71 and bought $71 worth of DKNG (roughly 1.3 shares).  So if I had 100 shares of DKNG I was now up to 101.3, almost as if I had a weekly DRIP dividend on a stock that pays no dividend.

I think this may have its place in a normal market but over the last year this has been a largely losing strategy for me.  Pennies in front of a steamroller, and all that, only with opportunity losses instead of real losses.

On just DKNG alone I bought it after the SPAC merger around $17 and sold $20 calls against it, then watched it run up to $40 at which point I had to watch 200 shares get called away at $20, missing out on the whole move.  I then bought again with a costs basis of $38 and held for a while, eventually selling $50 calls again it.  Those I watched get called away when the share price was around $65.

So selling the calls I make $17 here, $70 there, etc.  But all of those compiled profits get wiped out by missing out on one big move where I collected $50 in premium to miss out on a move in the stock that would have netted me $5000 by just holding the underlying.

Obviously you can sell calls on stocks that move a lot more slowly than DKNG and the like, but then of course your premiums are going to be pretty paultry and even low IV stocks that have been consolidating for ages can suddenly move on some big announcement (for instance AAPL a few months ago paid junk on premiums and then they had the stock split and people probably missed a $10,000 move for a premium that paid out a couple bucks if they had been selling calls on AAPL).

I tend to be much more heavily weighted in growth stocks than dividend stocks so it's "fun" to create those dividends on these stocks that don't pay them, but so far it hasn't been a money maker for me relative to what I'd have made just holding the underlying.

It certainly has its place, and I still keep doing it to a lesser extent, but as they say there's no free lunch and lost opportunity is still a loss imo.

I have a friend that does this and has performed similarly on names like DIS. I've been able to pick up some pennies the couple of times I've done it, but just rarely find the premiums really worth it me.

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So, on the week, wrote Puts:

IPOF Feb $15 expired today with the stock at $14.98, so I'll own those shares at $13.90
PLTR Mar $30 @ $3.29 pre-bloodbath (oops). Could have done better on the premium, but it'll be alright
PLTR Apr $24 @ $3.64
IPOD April $17.50 @ $4. With the new round of Chamath SPACs being filed en masse, I was banking on him making deals for IPOD and IPOF in short order. 

Edited by Bob Sacamano
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2 hours ago, Bob Sacamano said:

So, on the week:

IPOF Feb $15 expired today with the stock at $14.98, so I'll own those shares at $13.90
PLTR Mar $30 @ $3.29 pre-bloodbath (oops). Could have done better on the premium, but it'll be alright
PLTR Apr $24 @ $3.64
IPOD April $17.50 @ $4. With the new round of Chamath SPACs being filed en masse, I was banking on him making deals for IPOD and IPOF in short order. 

Can you go into a bit of detail for us new guys why this wasnt as good as you hoped.  trying to learn

I think Ill follow you on IPOD

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21 minutes ago, KGB said:

Can you go into a bit of detail for us new guys why this wasnt as good as you hoped.  trying to learn

I think Ill follow you on IPOD

I could detail why I did this in the first place. I had a reason for it. And it made sense. But that would be long and not really get you what you're looking for. Just know that this wasn't a one-off, it involved more transactions with a broader goal, and I still think it's going to accomplish what I wanted to accomplish long-term. But I made a couple of PLTR-related trades hastily without bothering to look around and see what was going on with the company/stock. Earnings were coming and the lockup expiration was approaching. It was foreseeable that the price of this stock had a decent chance of dropping, and it was not the optimal time to make this trade.

The part you actually care about:

  • I wrote the Put on 2/11, when the stock price was around $34. So the premium I received was $3.29. 
  • If I wrote that exact same Put right now, the premium I would receive would be around $4.45, so I can safely say I missed out on an extra $1.15 per share.
  • If I had waited and written this same Put Weds (2/17), when the stock price was $28, the premium probably would have been $4.75-$5 (remember, these sell in 100 share lots, so we're talking $329 vs. $475-ish * the number of Puts I wrote. It turns out to be not insignificant)
  • If I had waited and written the Put yesterday, when the stock was in the $25 neighborhood, I probably wouldn't have written this put at all. I probably would have written a Mar $22 Put for around the same premium I ended up getting. Which just means right now I'd probably be up 45% on that transaction and looking from the $29 current price at a much less likely to assign strike of $22 and a breakeven of $18.71 instead of a currently In The Money strike of $30 and a breakeven of $26.71.
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Just now, Bob Sacamano said:
  • If I had waited and written the Put yesterday, when the stock was in the $25 neighborhood, I probably wouldn't have written this put at all. I probably would have written a Mar $22 Put for around the same premium I ended up getting. Which just means right now I'd probably be up 45% on that transaction 

Further, if this were the case, I'd probably just Buy the Put back to close it out and... wait for it... write the exact same $30 put I wrote 8 days ago for an additional $4.45. So, a dumb mistake just means missed opportunities, really.

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34 minutes ago, Bob Sacamano said:

I could detail why I did this in the first place. I had a reason for it. And it made sense. But that would be long and not really get you what you're looking for. Just know that this wasn't a one-off, it involved more transactions with a broader goal, and I still think it's going to accomplish what I wanted to accomplish long-term. But I made a couple of PLTR-related trades hastily without bothering to look around and see what was going on with the company/stock. Earnings were coming and the lockup expiration was approaching. It was foreseeable that the price of this stock had a decent chance of dropping, and it was not the optimal time to make this trade.

The part you actually care about:

  • I wrote the Put on 2/11, when the stock price was around $34. So the premium I received was $3.29. 
  • If I wrote that exact same Put right now, the premium I would receive would be around $4.45, so I can safely say I missed out on an extra $1.15 per share.
  • If I had waited and written this same Put Weds (2/17), when the stock price was $28, the premium probably would have been $4.75-$5 (remember, these sell in 100 share lots, so we're talking $329 vs. $475-ish * the number of Puts I wrote. It turns out to be not insignificant)
  • If I had waited and written the Put yesterday, when the stock was in the $25 neighborhood, I probably wouldn't have written this put at all. I probably would have written a Mar $22 Put for around the same premium I ended up getting. Which just means right now I'd probably be up 45% on that transaction and looking from the $29 current price at a much less likely to assign strike of $22 and a breakeven of $18.71 instead of a currently In The Money strike of $30 and a breakeven of $26.71.

Thank you very much.  I thought you were buying calls like me.  What you said makes sense if I understand it correctly.  :the more you know: 

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55 minutes ago, KGB said:

Thank you very much.  I thought you were buying calls like me.  What you said makes sense if I understand it correctly.  :the more you know: 

Yeah, that clarification would have helped. Fixed.

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PINS closed Friday at $85.90. You can sell a March 5 $83.50 put for $2.41, paying you $241

If you do not mind owning 100 shares of PINS at $83.50, can someone help me analyze the risk/reward proposition here?

Also, would the break-even price for the buyer to "put" the 100 shares to me be $81.09? I did cost of the shares (100 shares x $83.50) - cost of the put (100 x $2.41). Is that math right? So I likely wouldn't get put the shares unless the stock price falls below $81.09?

 

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