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Options Trading (1 Viewer)
- Thread starter TripItUp
- Start date
I love the idea of selling QS puts here and would do it if I hadn't done so before. I was put a lot of shares and don't want to get in any deeper. I like your trade.
ETA: I don't think the premiums are crap. You are getting almost 10% ROI in three weeks on slighty out-of-the-money puts and yours, which you wisely bought slightly in the money, yield about 11%. That's pretty good, actually.
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Good one. Are you still of the mind to NOT buy these puts back and let them ride into expiration? My rule of thumb is that if you can squeeze out 50% of the premium (and quickly) that I close my position and move on. With the big upward move of HGEN, these puts have made you money but I'd bet it's nowhere near the 50% mark since expiration is not for a while yet. The premiums don't move that quickly when it's two months out.
Speaking of the speed at which the value of options move:
I'm looking at getting into the housing market, given the craziness in real estate lately. Looking at Lennar (LEN) which is a solid name, trading just under $100 now. I want to find an in-the-money call so that I can leverage my cash but also take advantage if the stock moves up. This chart is such a clear example of what I look for, decided to share it with you. The point here is to outlay as little as possible but to still capture as much of the upside gains as I can. So there is a Greek for that, it is called delta, and it represents the percent that the call will go up as the share price goes up. I want an in-the-money call that has a delta of at least 90% (0.90) meaning that if the stock rises ten points, the option should go up about nine. You can pay more and buy a call that is deeper in the money, which in this case is not all that much more expensive.
In the chart below, the strike price is in the middle and I'm eyeing the $70 November calls shown on the left. Since the stock is trading near $100, those should be worth a bit more than $30 right at this very minute and that is almost exactly where they are. In other words, almost all of the value of the stock is baked into the price of the call. Now if you look to the far left, the delta on that $70 call is 0.90 which captures the 90% option price movement I am looking for. Note also that going to a $65 strike call costs about $36 and has a delta of 0.99. I would choose either one of those two. But anything deeper in the money gets you no boost in delta so going that direction (say a $50 call) actually reduces the leverage. It.is a safer play, but am looking to maximize gains while minimizing outlay.
(It's not letting me copy the image but here is a link. Make sure it is November expiration): Lennar Option chain
I'm looking at getting into the housing market, given the craziness in real estate lately. Looking at Lennar (LEN) which is a solid name, trading just under $100 now. I want to find an in-the-money call so that I can leverage my cash but also take advantage if the stock moves up. This chart is such a clear example of what I look for, decided to share it with you. The point here is to outlay as little as possible but to still capture as much of the upside gains as I can. So there is a Greek for that, it is called delta, and it represents the percent that the call will go up as the share price goes up. I want an in-the-money call that has a delta of at least 90% (0.90) meaning that if the stock rises ten points, the option should go up about nine. You can pay more and buy a call that is deeper in the money, which in this case is not all that much more expensive.
In the chart below, the strike price is in the middle and I'm eyeing the $70 November calls shown on the left. Since the stock is trading near $100, those should be worth a bit more than $30 right at this very minute and that is almost exactly where they are. In other words, almost all of the value of the stock is baked into the price of the call. Now if you look to the far left, the delta on that $70 call is 0.90 which captures the 90% option price movement I am looking for. Note also that going to a $65 strike call costs about $36 and has a delta of 0.99. I would choose either one of those two. But anything deeper in the money gets you no boost in delta so going that direction (say a $50 call) actually reduces the leverage. It.is a safer play, but am looking to maximize gains while minimizing outlay.
(It's not letting me copy the image but here is a link. Make sure it is November expiration): Lennar Option chain
Dinsy Ejotuz
Footballguy
Have been thinking about something and puts seem like one of the obvious options, so I figured this was as good a place as any to ask. Forget whether or not you think these are likely or possible...
What would you do today to hedge against serious civil unrest in the US? Not necessarily Civil War levels, but potentially worse than anything we've seen since then. The timeline is unknown but could be as long as 10-15 years (so it can't be a position you could be squeezed out of).
What I'm picturing is speculative in nature, but it's more along the lines of paying an insurance premium -- you hope you never need the policy.
Also, purely speculative, how would you ~option (doesn't have to be an actual option) most or all crypto going to 0? Again, timeline unknown, but it's potentially a long-term play, so risk management and limited downside is important. Is there a way to short (not an actual short) the entire thing without massive exposure?
What would you do today to hedge against serious civil unrest in the US? Not necessarily Civil War levels, but potentially worse than anything we've seen since then. The timeline is unknown but could be as long as 10-15 years (so it can't be a position you could be squeezed out of).
What I'm picturing is speculative in nature, but it's more along the lines of paying an insurance premium -- you hope you never need the policy.
Also, purely speculative, how would you ~option (doesn't have to be an actual option) most or all crypto going to 0? Again, timeline unknown, but it's potentially a long-term play, so risk management and limited downside is important. Is there a way to short (not an actual short) the entire thing without massive exposure?
My first blush reply about your end-of-days scenario: I'd buy GLD and BTC or ETHE (I prefer ETHE, that's why I list it) which are also a nice hedge against inflation. I'd buy SPY puts but that's shorter term. I might buy stocks in companies that make staples (KMB, PG, etc) or just a staples ETF like XLP. People will still poop and clean themselves.
As for predicting that crypto will go to zero: I don't know, can you short those things? I suppose you can but it would be expensive and on a shorter timeline.
Dr_Zaius
Footballguy
I'm curious - for these types of trades on low volume contracts, do you have problems with high spreads or difficulty filling?
Yes. I often need to place a bid very near the ask since the spread is wide and the volume is so low. My LEN calls just triggered. I bought two at $30.50. So although the price looked to be $30.40, I had to pay a bit more to make it trigger. It's the cost of trading options with low volume. Or you enter your bid and wait and hope it hits, if you are OK not entering the position.
While I don't love what's described above, far worse is trying to buy or sell a spread. In that trade, you might buy a call at a certain strike and then simultaneously sell another at a different strike. So now we have two degrees of freedom in two kind-of wide bid/ask spreads, and I feel like you really get hammered in premium to make those trades. For example, to hedge against a May swoon in the market, I jumped on a VIX call spread one month ago, expiry in July, buying the $25 calls and selling the $40 calls. If you recall, there were some dark trading days a week or so ago, and I entered a trade to exit my position because the VIX had risen to $26, and I could have netted some profit on the trade. I wanted to capitalize on the big drop in the market. But my order never hit because I entered a price that was in the middle of the bid/asks, not on the end whereby I get a poor price. Cost me a lot not to make that trade as the VIX has now retreated to under $18. I almost never buy spreads anymore for just this reason.
Bossman
Footballguy
So for the same investment amountpecorino said:
$70.00 call x 200 shares = $14,000 investment
Price goes up $1 and your up $180 (with a 90% delta ... 200 x $.90)
=============
While buying $14,000 worth of stock only gets you 140 $100 shares.
Price goes up $1 and your up $140
≠=≠=====
The downside / worse case scenario. Stock price falls below the $70 strike and your out the entire $14,000.
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Bossman
Footballguy
I was paid $2.40 for the puts and can cover today for $1.90. (was $1.75 yesterday) ... so 20-25%pecorino said:
Yeah, the strike date is just too far out for much decay ... so the only way I gain is if the stock price goes up (further away from the strike price for you noobs)
Could get out now for .50 or .65 ... which would net me $500 or $650. Unless the put price changes drastically, I'll likely ride it out and keep the entire $2400
Also, my day job keeping me from doing much research to be getting in and out of these. Easier for me to find a winner, set it and forget it.
Bossman
Footballguy
I suppose you're losing at a compounded rate as well should the stock price go down.
But that's the idea of having more exposure I guess.
I like it.
It's leverage on both sides of the equation. In essence, a 10% move in the stock would result in a 30% (or slight more) move in the value of the options, up or down.
By the way, you wrote "$70 call x 200 shares = $14000 investment" which is incorrect. The beauty of buying in-the-money calls is that the original outlay is much less than that. The calls only cost me $30.50 each so $6100 total gives me access to 200 shares. For a stock trading near $100, that would have been $20000 in principal for 200 shares outright. That explains pretty plainly where the 3 to 1 leverage comes from.
If you can exit the position now (a full seven weeks before expiration) and net 50% gain on your original premium, my instinct says that is the best thing to do. I know I wrote about this before. You're trying to squeeze as much premium out of the original sale, and I get that, but by closing the position, it frees up that cash to re-deploy. So the extra 50% premium that you can get by waiting it out seems to have no cost but there is a big cost. It is the opportunity cost lost by keeping that money tied up in that trade for the next seven weeks. I'd agree that getting 25% is not enough for me to close the position either but, really, after just three days I might consider it.
Put it another way, you entered that position less than one week ago so if you can get even just 30% of your premium and close it out, that gives you seven more weeks to rinse and repeat. Sure, you would not be getting 100% on this trade, but if you get a series of three, four or more trades and netting 30% gain on each of those, you can make more money in less time. And I am not even mentioning the risk that the underlying stock drops and you're back to square one. In fact, HGEN is way down today, so banking that premium (even if it was only 30%) in just a week would be wise and you could have resold the puts again today on the drop. I don't think it ever got to that 30% threshold for you, though. Not trying to rub your nose in this, not in the least, but defending my stance that it is sub-optimal to hold those puts if you can close it out and get a good percent of your money especially in a very short time frame.
Bossman
Footballguy
Dang it!
I posted it as $30 x 200 shares
and when I read it thought, that can't be right, and changed it to the $70.
3 to 1 just seems to good to be true.
Bossman
Footballguy
Fixed.
So 3 to 1 in this case.
$6000 invested in calls is the same as having $18,000 in stock.
I've definitely got to try this.
Thanks P
Bossman
Footballguy
And had you purchased 180 shares, giving you the same exposure, you'd be out at least $5400 should the stock price drop to $70...
So really not much difference in risk.
I'm sorry, this is fascinating to me.
Yes, in-the-money calls on low-beta stocks (especially when they pay a dividend) are a very cheap way to leverage money and get a nice 3-for-1 risk/reward. I have been on the end when the options become essentially worthless which is a real kick in the pants but this is a game of probabilities. You don't need to be right every time. The example you gave when you actually own the shares, however, ignores two key points that are in the plus-column for buying stocks rather than the options. One is that you do collect the dividend. But much more significant is the fact that you still own the stock. Sure, your paper losses equal the real losses that would have happened by buying the calls, but in the stock scenario, you can hold. It's just paper losses and if you're getting a dividend, holding for a rebound is not unpalatable. Still, I love outlaying less, and potentially getting a big return on a relatively stable stock.
Sand
Footballguy
Ended up owning PLTR at 22 (was at 21 when the contract expired). I have sat on it as Fidelity won't let me sell a call against the shares - says I don't have the requisite level. I guess they think unless I buy-write that I'm doing a naked call. Which is stupid, the shares are right ####### there, fellas.
Anyway, shares have mini-mooned to 23, so they have done me a favor, I guess!
Still, I would like to figure out how to get Fid to tag existing shares to a sold call.
Bob Sacamano
Footballguy
Bob Sacamano
Footballguy
Already own some ZIM commons sub-$30.
Wrote some ZIM Jun puts:
$40 for $2.40
$35 for $.55
Bought some Jul Calls:
$40 for $4.09
Wrote some ZIM Jun puts:
$40 for $2.40
$35 for $.55
Bought some Jul Calls:
$40 for $4.09
Desert_Power
Footballguy
Don't Toews Me
Footballguy
I thought Natenberg's book was pretty good. Have heard good things about Hull's book too (haven't read it though).
Bob Sacamano
Footballguy
Closed the bold for $1.11 today. I think it's HIGHLY likely ZIM sees another 5% this week, and I think it's highly unlikely it sees $40 again by next Friday, but this isn't the one to get greedy on imo. Will "settle" for 54% of the trade in 3 days.
Bob Sacamano
Footballguy
Sold 60% of the calls to cover the entire premium and pocket about $560. Will freeroll the rest and see how the next month plays out. There's no question in my mind this sees the $50s-$60s at some point. Whether or not that's by July, :shurg:
Also not sure how to play the ordinary shares wrt the "special dividend". Seems like a capital thirst trap.
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Bossman
Footballguy
@pecorino
So I'm considering giving this a whirl tomorrow...
Looking at SLV trading at $25.87
July 16 $22 call is selling for $4
Delta is 93%
So if I invest $4000 in calls, it gives me "exposure" equal to 930 shares (93% of 1000 shares)
... vs just buying $4000 of shares which would give me exposure to 154 shares
Am I thinking correctly here P?
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The option chain I'm looking at shows delta = 0.96 which is even better for you. Looks like you are talking about buying 10 calls. It actually gives you exposure to 1000 shares but the price movement of SLV will only account for 96% of the movement of the value of the calls. The risk is if SLV trades under $22 come July 16 in which case you lose $4000. The better case is a rise of, let's say 10% (that's super-optimistic), which puts SLV around $28.50, netting you almost a double-up. Great leverage, a nice play against inflation. I'm not tailing you on this trade as I've pushed a lot into GLD, but I like this trade a lot.
Desert_Power
Footballguy
Anyone trade options on the VIX? Seems a bit of a confusing space, but was just noticing how low volatility seems to be lately.
Yes, I bought a call spread heading into the summer. It trades similarly to stocks but the symbol is a bit wonky: "$VIX.X"
Bossman
Footballguy
Just going to dip my toes this first time around;
order in for SLV 5 $20 July 16 calls (playing it a little safer with the $20's instead of the $22's)
$5.95 ea (x 500 shares) = $2975
Stock is trading at $25.95 ... so literally a wash value wise.
So in theory, with a delta of 100% in this case, and owning 5 calls (500 shares), I should net $500 for every $1 the stock price moves.
... and the same to the negative side.
This is brilliant. Thanks for the enlightenment P. Now I'm stupified as to why there isn't a dozen other folks in here looking at this and asking questions.
also ... Never bought calls before ... is it up to me to execute or will my broker do this for me automatically when they expire in the money?
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You have it exactly right, and it is safer when you go deeper in the money, but it costs more upfront. So with a given outlay (like $3000) you own less than if you went with the $22 strike calls. A good first in-the-money call trade for you. Hope it works out.
About having your calls expire in the money: You are allowed to exercise the call whenever you like, even prior to expiry. That means you can go ahead and buy SLV for that strike price (500 shares for $20). I have never exercised a call option, myself. Instead I always close the trade by the expiration date. That's because the price of the call will accurately reflect (practically to the dollar) the value that you would get by exercising the option but however the fees are less. I suppose if you truly want to own SLV, then by all means exercise the call. You'll need to look at how your broker handles it, though I would never want to just let is expire and trust that they'd exercise it how you'd like. I'd always want to do it myself before expiration to make sure the price is right, etc.
To your next-to-last point, when I started trading in-the-money call options, I was also surprised at how low the volume is. For instance, I have been digging into LEN which trades over 2 million shares per day. The November $70 calls (which I've invested in) have a volume of zero today and with only 18 open interest. Now there are a ton of expiration dates and a lot of different strike prices, but when you start nailing down high delta (over 90%) long-term calls, that pool narrows. I can't believe there aren't more like at least hundreds of contracts being traded each day but I guess options are opaque enough or exotic enough that folks don't use them. They are also high-risk. Even with your SLV trade, we're tossing around contingencies of losing your entire principal versus possibly 100% return in one month, and that's just not really mainstream. I can see why the vast majority of investors don't tread here. I'd imagine that buying call options when a bear market hits might have me rethink the practice but for now, I love it, too.
I went a different route. With the drop in DKNG today, I bought 100 shares outright at $47 then sold a covered call for next Friday once it rose to $48. The call is with $50 strike and it paid $150. In other words, by the end of next week, if DKNG is trading above $50, it will be called away and I'll make $150 on the call premium and $300 on the rise in stock price. I only mention it because this is a case where playing with options makes the investment less risky, not more so. Because, if DKNG drops, I mitigated the loss by selling the call. It also caps the profits, obviously. I like to do these little trades on names I want to own (like DKNG) but don't mind if it gets called away. Might not seem like much of a trade, but it represents a possible 9% gain in eight trading days, with the loss mitigation of selling the call. It's a losing trade if DKNG drops below $45.50 by the end of next week in which case, I'd probably either buy another 100 shares, or at the very least, sell another covered call for a couple weeks further out.
I'm long BLDP #todem
KGB
Footballguy
When I sell my bizz, and get some time, I'm going to hire a few of you guys to teach me the way with options. I just have no time right now.
Thank you very much for posting a great description so I can read and try to learn
Bossman
Footballguy
Selling 20 of these paid me $2000.
My break even is $3.50 ($4.50 strike less $1 I was paid)
Seems like easy money. So long as it doesn't tank.
Not sure where else to make 22% in 4 weeks. ....ok, TRCH, ... but I was too hesitant to pull that trigger.
Dr_Zaius
Footballguy
Good timing on this one. I was thinking of tailing but today's runup has dropped the payoff a bunch.
Went back to the QS well, sold a July 16 $25 put after my June 18 one expired. Will probably keep selling these until I eventually have the shares put to me, as I'd like to own long term.
Here is a trade for all of you put-sellers out there. Little back-story: I have been trading ICPT (Intercept Pharma) for several years now. It moves a lot (had been above $100 in 2019), had a resistance level around $60 in 2018 and in mid-2019 but broke through that in 2020. In the past year, it has steadily drifted lower from $45 all the way down to $14. I've been a buyer in the $20s, and when it went sub-$20, I sold a lot of September $15 puts.
In trying to close my position by buying back those puts, I am surprised at how expensive they still are (so it is still an open position for me). This appears to be a good opportunity to sell ICPT puts for those who are interested in the company and/or want to deploy some cash to get a decent return over the next three months. The stock has been slowly rebounding from $15 to $20 over the past month so $15 puts seem unlikely to hit. In other words, if you actually want to be put the stock, you may want to sell puts closer to the current share price. The ones I sold for September at $15 will probably expire worthless so if you sell those, you'd be in the camp of someone who does not really want to own the stock.
So here is the trade: Selling ICPT $15 September puts for roughly $0.80 (the bid/ask spread is from $0.75 to $1.00, so I'm not sure what price you can get). Let's just suppose you sell at the low end of $0.75. That means you can deploy $1500 for three months and get a return of $75 which is 5%. That's the most conservative estimate, you may make more. And if you want to roll the dice with a higher risk/higher reward play, the $17.50 September puts are selling for about $1.70, approaching a 10% ROI. As I said, I would be all over this trade except for the fact that I already own several hundred shares of the stock plus already sold 8 September puts which are still open. GLTA.
In trying to close my position by buying back those puts, I am surprised at how expensive they still are (so it is still an open position for me). This appears to be a good opportunity to sell ICPT puts for those who are interested in the company and/or want to deploy some cash to get a decent return over the next three months. The stock has been slowly rebounding from $15 to $20 over the past month so $15 puts seem unlikely to hit. In other words, if you actually want to be put the stock, you may want to sell puts closer to the current share price. The ones I sold for September at $15 will probably expire worthless so if you sell those, you'd be in the camp of someone who does not really want to own the stock.
So here is the trade: Selling ICPT $15 September puts for roughly $0.80 (the bid/ask spread is from $0.75 to $1.00, so I'm not sure what price you can get). Let's just suppose you sell at the low end of $0.75. That means you can deploy $1500 for three months and get a return of $75 which is 5%. That's the most conservative estimate, you may make more. And if you want to roll the dice with a higher risk/higher reward play, the $17.50 September puts are selling for about $1.70, approaching a 10% ROI. As I said, I would be all over this trade except for the fact that I already own several hundred shares of the stock plus already sold 8 September puts which are still open. GLTA.
KGB
Footballguy
Thank you for the great post.
All my money is in play, but ya never know for tomorrow!!! Love posts like this, really helps us newbs
Ted Lange as your Bartender
Footballguy
A must watch for you options degenerates
https://twitter.com/ophirgottlieb/status/1412503003144146946?s=10
https://twitter.com/ophirgottlieb/status/1412503003144146946?s=10
Bossman
Footballguy
On 5/24 I was looking to own more HGEN but instead of just buying the stock at $20 like most, I sold puts.
On 5/24 I sold 10 HGEN puts, $17.50.
Paid me $2.40.
They were put to me 7/16
Gives me 1000 shares at a cost basis of $15.10. ($17.50 less $2.40)
Stock is back over the $17.50 in pre-market today. Hopefully back to $20 soon.
I like option trading.
On 5/24 I sold 10 HGEN puts, $17.50.
Paid me $2.40.
They were put to me 7/16
Gives me 1000 shares at a cost basis of $15.10. ($17.50 less $2.40)
Stock is back over the $17.50 in pre-market today. Hopefully back to $20 soon.
I like option trading.
KGB
Footballguy
IMO, RIot just kinda follows BTC.
So, I try to buy low. We shall see. Im def no expert
My buddy who is actually smart, really like BABA and even JD. But really BABA. They are the amazon of china.
only question is how this DIDI and other BS effect it.
Good call on RIOT. Congrats.KGB said:IMO, RIot just kinda follows BTC.
So, I try to buy low. We shall see. Im def no expert
My buddy who is actually smart, really like BABA and even JD. But really BABA. They are the amazon of china.
only question is how this DIDI and other BS effect it.
