Author Topic: Options heretics thread - by request  (Read 11454 times)

bthewalls

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Re: Options heretics thread - by request
« Reply #50 on: June 26, 2020, 02:45:53 PM »
@Financial.Velociraptor,
Ive been trying to work out how to do this on DEGIRO for a long time and no further forward. Seem to have limits on what I can choose.

Ever considering showing this on a youtube?

Will need to digest this thread.....very good and thanks

baz

Baz,

I don't follow.  What is DEGIRO?

Degiro a trading platform Like an app

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #51 on: June 29, 2020, 09:47:39 AM »
@Financial.Velociraptor - Knowing what you know now, how would you approach TSLA?

I don't know the company's full story, but roughly speaking they are exclusively an electric car maker with long battery range.  A new factory in China suggests they'll make inroads to the Chinese market, while also being closer to a key ingredient in batteries (rare earths in China).  Tesla fans aren't looking at P/E when they buy the stock.

Tesla is priced for exponential growth, which strikes me as a good thing to bet against (unless it's COVID!).  China has not respected intellectual property (IP) in the past, so Tesla's battery plans could leak to Chinese car makers.  Ford plans on making an all-electric truck that could prove much more popular than Tesla's.  Any one event is unlikely, but Tesla perfectly dodging them all seems unlikely, too.

Buying 11.5 month PUT options on Tesla with $1000 strike costs about $250/sh, or $25,000/contract.  If Tesla falls -22% that PUT only breaks even!  Similarly for 2 years out costing $336/sh, or $33,600/contract, which requires Tesla fall -31% in two years to break even.  I like the idea of stock options, but not the prices.

Financial.Velociraptor

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Re: Options heretics thread - by request
« Reply #52 on: June 29, 2020, 10:49:46 AM »
@Financial.Velociraptor - Knowing what you know now, how would you approach TSLA?

I don't know the company's full story, but roughly speaking they are exclusively an electric car maker with long battery range.  A new factory in China suggests they'll make inroads to the Chinese market, while also being closer to a key ingredient in batteries (rare earths in China).  Tesla fans aren't looking at P/E when they buy the stock.

Tesla is priced for exponential growth, which strikes me as a good thing to bet against (unless it's COVID!).  China has not respected intellectual property (IP) in the past, so Tesla's battery plans could leak to Chinese car makers.  Ford plans on making an all-electric truck that could prove much more popular than Tesla's.  Any one event is unlikely, but Tesla perfectly dodging them all seems unlikely, too.

Buying 11.5 month PUT options on Tesla with $1000 strike costs about $250/sh, or $25,000/contract.  If Tesla falls -22% that PUT only breaks even!  Similarly for 2 years out costing $336/sh, or $33,600/contract, which requires Tesla fall -31% in two years to break even.  I like the idea of stock options, but not the prices.

It isn't a good idea to bet against a stock with a cult following.  Especially at those prices!

ChpBstrd

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Re: Options heretics thread - by request
« Reply #53 on: June 29, 2020, 12:11:11 PM »
I wasn't asked, but here're my thoughts anyway :). You write puts on companies/funds you want to own long-term, but only at a discount, and you bet against companies that have problems you don't think are reflected in the price. IDK if Tesla fits either bill for me.

TSLA is a company a lot of people want to own long-term, but its price is 100% speculation, so it is difficult to establish a price that would be a discount. How much does cheap FOMO cost? At what point would lowered expectations be a bargain? If the goal is to buy hype low and sell hype high, at what level is hype low, and relative to what else?

If I did anything with TSLA, I might do an in-the-money bear spread. TSLA's high volatility means the pricing of options across strikes is compressed. I.e. the 1000 call or put is not priced much differently than the 1005 call or put, and it is this way up and down the chain. This means that spreads are relatively cheap. I'd go the bear route to hedge my market exposure elsewhere. The 1095/1100 call spread with 32 days left on it could be had for a credit of about $138 with a maximum $500-138=$362 at risk. TSLA would have to rally $99.38 (almost 10%) in 32d for this trade to break even. Yes, this outcome happens all the time with TSLA but the 50% upside seems fair to me, particularly if I'm partially offsetting the risk of an overall market fall affecting other investments.

If you want to get really fancy, offset the risk of this bear call spread with credit received from a bull put spread (i.e. do a "condor"). The 895/900 bull put spread could be had for a credit of about 177 with $500-177=323 at risk. TSLA would have to fall >10% for this spread to lose money. Put the credits together and the most you can lose is 500-138-177=185, or 185/500=37% of the money at risk (500 at risk instead of 1000 because TSLA cannot both go up 10% and down 10% on the expiration date) and there's a good chance you would earn $315, or 63% in 32 days.

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #54 on: June 30, 2020, 01:41:42 AM »
(Having several more experienced option traders helping is fine by me!)

I have dual views of Tesla... could go up +50% or down -50%, so maybe a bull spread this time.
https://www.investopedia.com/terms/b/bullspread.asp

Tesla (TSLA) closed at $1009.35 on Monday (June 29).  This pair of July 17 calls are fresh (last min Mon):
$1010 strike, $62.10 premium
$1030 strike, $54.00 premium

If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.

ChpBstrd

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Re: Options heretics thread - by request
« Reply #55 on: June 30, 2020, 08:24:41 AM »
(Having several more experienced option traders helping is fine by me!)

I have dual views of Tesla... could go up +50% or down -50%, so maybe a bull spread this time.
https://www.investopedia.com/terms/b/bullspread.asp

Tesla (TSLA) closed at $1009.35 on Monday (June 29).  This pair of July 17 calls are fresh (last min Mon):
$1010 strike, $62.10 premium
$1030 strike, $54.00 premium

If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.

I'm not familiar with Vanguard, but I think on most platforms a spread is entered as one trade. You might want to use their website instead of their mobile app, particularly if you want to set up a contingency order. Also, some platforms have a simple mobile app and a complex mobile app with more features like options strategies.

If you don't have the right buttons, check the options trading level at which you are authorized. Level 1 means you can only buy options and maybe do covered calls. Spreads are a higher level of complexity. It can take a couple of days to obtain the required permissions.



MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #56 on: June 30, 2020, 10:05:10 AM »
"I'd like to share a revelation that I've had during my time here"  - Agent Smith, The Matrix

A call option can be viewed as owning stock for a cheaper price.  For example:
(HOLD) pays $1090 for TSLA now, and holds it 1 year
(OPTION) pays $604 for a deep in the money call at $495/sh

Let's say OPTION takes a -100% loss because TSLA drops to $495/share... OPTION lost $604.
But HOLD owned $1090 of stock, now worth $495... they lost $595.  Both lost about $600... it's not a "-100% loss", but about the same loss to the option holder or stock holder.

A year ago TSLA's stock price was $233.  If TSLA sunk back to it's 52 week low, OPTION still lost $604... but HOLD lost $857.  So while there's still a question of what happens when options are set to expire, at least now I see how options can be a cheaper way to own stock.

https://www.investopedia.com/articles/optioninvestor/06/options4advantages.asp

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #57 on: June 30, 2020, 10:12:43 AM »
...
If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.
I'm not familiar with Vanguard, but I think on most platforms a spread is entered as one trade. You might want to use their website instead of their mobile app, particularly if you want to set up a contingency order. Also, some platforms have a simple mobile app and a complex mobile app with more features like options strategies.

If you don't have the right buttons, check the options trading level at which you are authorized. Level 1 means you can only buy options and maybe do covered calls. Spreads are a higher level of complexity. It can take a couple of days to obtain the required permissions.
At Vanguard I did not request the higher level initially, so maybe I should do that to see if their interface changes.  I believe Interactive Brokers has put far more effort into their trading interface.

(As to the paper trade I mentioned, it would have been +147% profitable since TSLA went up 6% today, passing up $1030/sh.  Maybe next time).

Financial.Velociraptor

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Re: Options heretics thread - by request
« Reply #58 on: June 30, 2020, 03:17:54 PM »
A 1010/1030 BCS puts $2,000 in capital at risk.

I'm not aware of an "automatically exercise [long], if [short] assigned" feature at any broker.  I'd lay odds if you are decent programmer, you could get IB's "Trader Work Station" to automate that though.  I use IB.  IB will automatically start liquidating positions if you have a margin violation (they don't do margin calls). From experience, the algorithm, is coded to liquidate your positions in the least tax efficient manner possible.  PROTIP: don't have a margin violation.


But if you get your short leg assigned, by definition the long leg is still "in the money".  So you are hedged and your margin requirement is [small].  Theoretically, you want to set up a combo order if assigned to buy back the short shares while selling the long call.  This theoretically recovers some of the remaining time value and yields a bonus profit.  Might actually even work on TSLA where liquidity is high.  I've found when spreads get assigned early, I can't get the market maker to give up the time value that should rightfully be mine with a combo order.  At any rate, early assignment usually means the TV remaining was already [low].  I've just made it a policy to log in and exercise my long call.  There is no commission at IB that way so even if I could extract some time value the commissions would cut into it.

KBecks

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Re: Options heretics thread - by request
« Reply #59 on: June 30, 2020, 06:28:10 PM »
Vanguard does not do multi leg trades. You can look at IB or Tastytrade if you want that. I have been happy enough swimming in the kiddie pool there.

ChpBstrd

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Re: Options heretics thread - by request
« Reply #60 on: June 30, 2020, 09:07:54 PM »
Thinkorswim apps from TD Ameritrade are another pro-level choice. The desktop app is enthusiast level - expect to invest 100 hours figuring out half of what it does. It's as close to a Bloomberg terminal you can get for free on the internet with a paper trading account.

The mobile app is a lot simpler and offers graphical payout representations of options trades with up to four legs. There's also a web-based version if you're paranoid of installing apps.

https://www.tdameritrade.com/tools-and-platforms/thinkorswim.page

Optionalpha.com is a fun options learning site where the content creator does demos of thinkorswim to illustrate strategies.

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #61 on: July 01, 2020, 12:55:44 AM »
A 1010/1030 BCS puts $2,000 in capital at risk.
Time for me to learn - I think I have $810 at risk.  I buy the $1010 call for $6,210 and then sell a $1030 call which pays me $5,400.  If Tesla drops sharply, I keep $5,400 but lose $6,210 for a net loss of $810.  In this case Tesla went up to $1080, and let's say that $1030 call is exercised by someone else.  I think my broker would automatically charge my account ($1,080 x 100 = $108,000 minus $103,000) $5,000... but I could exercise my option ($1080 x 100 = $108,000 minus $101,000) and get a $7,000 credit.  So I can lose $810 or I can profit $2,000, as I see it.  (I'm sure in practice everyone would hold their options instead)

I'm not aware of an "automatically exercise [long], if [short] assigned" feature at any broker.  I'd lay odds if you are decent programmer, you could get IB's "Trader Work Station" to automate that though.  I use IB.  IB will automatically start liquidating positions if you have a margin violation (they don't do margin calls). From experience, the algorithm, is coded to liquidate your positions in the least tax efficient manner possible.  PROTIP: don't have a margin violation.
I have an IB account and programming experience.  I don't know how much time investment is needed for me to learn trading both ETFs and options on IB's Trader Workstation.  Any favorite tutorials, be they text or video?

But if you get your short leg assigned, by definition the long leg is still "in the money".  So you are hedged and your margin requirement is [small].  Theoretically, you want to set up a combo order if assigned to buy back the short shares while selling the long call.  This theoretically recovers some of the remaining time value and yields a bonus profit.  Might actually even work on TSLA where liquidity is high.  I've found when spreads get assigned early, I can't get the market maker to give up the time value that should rightfully be mine with a combo order.  At any rate, early assignment usually means the TV remaining was already [low].  I've just made it a policy to log in and exercise my long call.  There is no commission at IB that way so even if I could extract some time value the commissions would cut into it.
Sounds like I have a "time of exercise" risk, where assignment happens while I'm unable to exercise my call option.  A volatile stock could then drop, leaving me with a profit that eats into my profit/premium.  But you're saying that can be mitigated by closing both options early.

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #62 on: July 01, 2020, 01:01:57 AM »
KBecks - Thanks, appreciate the insight.  Sounds like I don't need to take action at Vanguard.

ChpBstrd - I signed up for an HSA with HSA Bank, which places the investments at TD Ameritrade.  So I have access to TD Ameritrade tools, but they wouldn't be useful for placing trades.  Although... turning my HSA into play money and leaving everything else alone isn't the worst risk management idea...


Anyone else familiar with IB's Trader Workstation, I'd like to hear about time investment and how you learned to use it.  I've seen one video talking about spreads, where at one strike you click the "bid" and another you click the "ask" to create a Combination Order.

Financial.Velociraptor

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Re: Options heretics thread - by request
« Reply #63 on: July 01, 2020, 12:15:04 PM »
A 1010/1030 BCS puts $2,000 in capital at risk.
Time for me to learn - I think I have $810 at risk.

You are right.  I had a brain fart.  You cannot lose more than your net debit.

bthewalls

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Re: Options heretics thread - by request
« Reply #64 on: July 01, 2020, 03:09:47 PM »
I might experiment with this on small scale to learn, minimal loss.

anyone recommend best trading platform in UK? Or can options be done through a trading platform?

baz

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Re: Options heretics thread - by request
« Reply #65 on: July 01, 2020, 04:11:33 PM »
Suppose I have 500 shares of VT - current price 75.30, and I will want to sell them because I will need the money in a month or two.

Normally I would place a limit sell order at about 77 and wait. If it sells before I need the money, great. If not, I sell it at the market.

Would I more often be better off selling covered calls? And if so, how much better would it be?

KBecks

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Re: Options heretics thread - by request
« Reply #66 on: July 01, 2020, 05:38:12 PM »
Here is an options chain for VT:
https://www.nasdaq.com/market-activity/funds-and-etfs/vt/option-chain

I put in an 8/21/20 expiration for funsies


« Last Edit: July 01, 2020, 05:40:07 PM by KBecks »

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #67 on: July 02, 2020, 12:24:04 AM »
@bthewalls - Interactive Brokers has offices around the world, and a few people in this thread mentioned it for trading options.  You can also trade ETFs for $0/trade, so it might provide international investors access to lower expense ratios, even without using options.

@oldladystache - Option contracts are 100 shares (almost always), so you need to have $7,500 worth of VT to create 1 covered call contract.  If you had $22,500 that's 3 contracts (3 x 100 x $75/sh = $22,500).  Most Vanguard clients haven't signed up for options trading, so you'd need to answer questions online about your rough financial situation (income, NW, investments) and experience (in ETFs, bonds, options).

---
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

beltim

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Re: Options heretics thread - by request
« Reply #68 on: July 02, 2020, 12:52:28 AM »
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

While I don't disagree that restaurant profits will take a hit, do you think that will actually be reflected in the stock price in the next two weeks?

KBecks

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Re: Options heretics thread - by request
« Reply #69 on: July 02, 2020, 05:42:06 AM »
I have been writing (sell to open) puts and covered calls lately on stocks that I already own and like. I think when I write a put *and* write a covered call, it's called a straddle.  The stocks I'm doing this with are ones I know fairly well and don't mind owning shares of.  I own several high revenue SAAS/tech stocks, ZM, CRWD, NET, WORK, FSLY, LVGO. I also write options (but don't get paid much) on DIS and SFIX.  Some of these are rising in share price where writing options (I only do cash-covered puts) gets a little spendy, but I hold part of my port in cash.

Note that there is no way I would play with options on TSLA. Too spendy and I don't want to touch 100 share lots of TSLA.

« Last Edit: July 02, 2020, 05:44:42 AM by KBecks »

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #70 on: July 02, 2020, 11:26:04 AM »
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.
While I don't disagree that restaurant profits will take a hit, do you think that will actually be reflected in the stock price in the next two weeks?
If states impose restrictions on restaurants (eating and mask wearing, pick one!), their revenue drops to zero and markets price that in.  DIN has dropped -4% so far today while the overall market is up +1%.  Another example is June, where DIN hit a peak value of $63/sh.  It has dropped -38% from that peak (in under a month).  If it drops -13% my put options break even.  It's definitely risky, but overall I'm happy with the bet whichever way it turns out (payoff vs loss, chance of success given what I knew in advance).


KBecks - Are you aware of "TSLA7" mini options?  The stock price is 1/10th of TSLA, and options are 10 shares per contract... so you wind up with prices 100x lower (1/10th from stock, 1/10th from smaller contracts).
« Last Edit: July 02, 2020, 11:27:52 AM by MustacheAndaHalf »

bthewalls

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Re: Options heretics thread - by request
« Reply #71 on: July 02, 2020, 03:12:21 PM »
@bthewalls - Interactive Brokers has offices around the world, and a few people in this thread mentioned it for trading options.  You can also trade ETFs for $0/trade, so it might provide international investors access to lower expense ratios, even without using option
---
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

 Cool...I’ll look into it

KBecks

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Re: Options heretics thread - by request
« Reply #72 on: July 02, 2020, 06:00:09 PM »
I'm not interested in TSLA. However, I was able to realize some premiums on this expiration Thursday. Set up a little bit for next week.

ouroboros

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Re: Options heretics thread - by request
« Reply #73 on: July 09, 2020, 12:16:46 PM »
I really appreciate everyone in this thread who have explained this topic so clearly and well. I have tried to understand options for a while now and this is the first time it has 'clicked.' Thank you all again, this community is awesome.

markbike528CBX

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Re: Options heretics thread - by request
« Reply #74 on: July 09, 2020, 05:53:41 PM »
I really appreciate everyone in this thread who have explained this topic so clearly and well. I have tried to understand options for a while now and this is the first time it has 'clicked.' Thank you all again, this community is awesome.

Just be careful.  That "click" you heard might be the safety on a shotgun of doom going off. :-)

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #75 on: July 10, 2020, 02:15:06 AM »
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.
While I don't disagree that restaurant profits will take a hit, do you think that will actually be reflected in the stock price in the next two weeks?
I bought PUT options ($35 strike) on DIN stock, which dropped from about $43/share to $35.47/share now.  Although it's not at my strike price yet, the options are much closer to profitable, so the market value has soared from $1.00/sh to $1.87/sh.  I think that's my 2nd best option right now, with my two worst options either going nowhere or losing money.  So these gains will probably need to cover for -100% losses in other options.

Something to consider: would I post this update if I was losing money on all options?  Probably not.  I would still post the start and end result, but this middle update is biased: it's posted because I'm doing well.  Keep that in mind as you read about success stories - people are more likely to post them.

With only 5 trading days left, and markets realizing Covid-19 is serious (again), it doesn't make sense to imitate my trade now.  You'd pay much higher costs for the options, with far fewer days left.  It was a good bet to make when it wasn't expected, though.

ChpBstrd

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Re: Options heretics thread - by request
« Reply #76 on: July 10, 2020, 08:59:28 AM »

With only 5 trading days left, and markets realizing Covid-19 is serious (again), it doesn't make sense to imitate my trade now.  You'd pay much higher costs for the options, with far fewer days left. 
[/quote]

IDK, the volatility index has been falling for about a month now. The VIX can be read as a kind of shorthand for how expensive options are on the S&P 500. At 29, the VIX is historically high, but I'm not sure how high it is relative to a global pandemic that has infected millions, put tens of millions out of work, and may kill more Americans than World War 2 within its first 12 months. The case could be made that VIX will rise back into the mid-30s as the case for economic recovery withers under the faster spread of the virus. Schools are about to open!

https://finance.yahoo.com/quote/%5EVIX/

MustacheAndaHalf

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Re: Options heretics thread - by request
« Reply #77 on: July 10, 2020, 11:57:39 AM »
ChpBstrd - Earlier in this thread I was told "implied volatility" of the option is a better measure.  Even for the same stock, some strike prices will have higher volatility than others.  So you can't really assign the entire market a lower volatility - especially with the stocks I'm using, which are more volatile than the overall market.

I bought PUT options on a restaurant stock, a retail stock, and 3 others.  Let's say the market price of the retail PUT option doubled, and someone imitated my trade and bought today.  So they're paying twice as much for the same option.  That means their break even point is twice as far from the strike price.  And after that, their profits are half of mine.  If I break even, they lose -50%.  If I double my money, they break even, ... and so on.  It's a very different bet owing to the much higher price.

If I wasn't worried about vaccine news in the next couple months, I might look at put options on volatile stocks that suffer during a shut down - especially those with weak financials.  Maybe a travel-related stock (airline, hotel or cruise line).

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Re: Options heretics thread - by request
« Reply #78 on: July 10, 2020, 04:10:23 PM »
Some sobering words.  I want the novices here to understand that even experienced options traders have trades that result in losses.  I had a bull call spread in BAC with several percent downside protection that had 840 capital at risk.  The Fed stress tests did a number on my holding and sent shares down past my downside protection.  I held a little longer  hoping for a rebound but shares just kept trading lower.  I got out this morning with a $686 loss (33 days in force.)  That is, a spread that started out with 60 cents a share was worth only 11 cents this morning.

I have two trades lined up for Monday.  One where I have several percent downside protection in an out of the money short put that should yield around 25% annually and a bull call spread with 6% downside protection that has over 1,000% annualized profit potential.  But! - I *could* take losses again.  So...PRO TIP: be comfortable with quick large losses before you try to make quick medium sized gains with options.

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Re: Options heretics thread - by request
« Reply #79 on: July 13, 2020, 08:28:56 AM »
Question and comment....

I bought PUT options on DIN stock (listed on NYSE).  When I click on details of the PUT options I hold, I see:
"Account Type:  CASH"
Which I believe means this option is settled in cash, not in shares.  Is that correct?

My comment is surprise.  The current Covid-19 situation in the U.S. is about what I predicted, and I expected all of my options to be doubling or tripling.  I'm not sure what to make of it, actually.... in total, those options have gained +40% since purchase (at the time of this post).  This week I'll see if accurate Covid-19 predictions no longer become accurate investment predictions.

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Re: Options heretics thread - by request
« Reply #80 on: July 13, 2020, 09:08:30 AM »
Question and comment....

I bought PUT options on DIN stock (listed on NYSE).  When I click on details of the PUT options I hold, I see:
"Account Type:  CASH"
Which I believe means this option is settled in cash, not in shares.  Is that correct?

My comment is surprise.  The current Covid-19 situation in the U.S. is about what I predicted, and I expected all of my options to be doubling or tripling.  I'm not sure what to make of it, actually.... in total, those options have gained +40% since purchase (at the time of this post).  This week I'll see if accurate Covid-19 predictions no longer become accurate investment predictions.

The only options settled in cash are for indices. Perhaps what you’re seeing is a message that your account is not approved for margin? Or maybe it is that this position is cash-secured and not at risk of using margin if assigned.

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Re: Options heretics thread - by request
« Reply #81 on: July 13, 2020, 11:14:46 AM »
What I've heard is that you sell options into volatility.  I'm not sure about the put buying strategy unless you are hedging your long portfolio.

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Re: Options heretics thread - by request
« Reply #82 on: July 14, 2020, 09:08:49 AM »
Question and comment....

I bought PUT options on DIN stock (listed on NYSE).  When I click on details of the PUT options I hold, I see:
"Account Type:  CASH"
Which I believe means this option is settled in cash, not in shares.  Is that correct?



I suspect that since it says "Account Type" and not "holding type" it refers to your account wide trading permissions.  That is, you do not have margin permissions.  Is this a tax advantaged account?

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Re: Options heretics thread - by request
« Reply #83 on: July 14, 2020, 09:11:53 AM »
What I've heard is that you sell options into volatility.  I'm not sure about the put buying strategy unless you are hedging your long portfolio.

My strategy is largely "sell options".  I earn quite a lot more premium when vol is "high".  But I also hedge with long puts on companies I feel are overly indebted, especially if they have declining sales.  When TSHTF these tend to do very well often times coming in for a double or more.  Just a few thousand here and there makes for a nice hedge.  I also like to buy long dated puts on VXX.  Contango in the futures markets tend to make that ticker decay over long periods of time.  Has been my best, most repeatable trade since about 2010.  I likely would not have been able to FIRE at 40 without that trade.

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Re: Options heretics thread - by request
« Reply #84 on: July 14, 2020, 11:01:51 AM »
What I've heard is that you sell options into volatility.  I'm not sure about the put buying strategy unless you are hedging your long portfolio.

My strategy is largely "sell options".  I earn quite a lot more premium when vol is "high".  But I also hedge with long puts on companies I feel are overly indebted, especially if they have declining sales.  When TSHTF these tend to do very well often times coming in for a double or more.  Just a few thousand here and there makes for a nice hedge.  I also like to buy long dated puts on VXX.  Contango in the futures markets tend to make that ticker decay over long periods of time.  Has been my best, most repeatable trade since about 2010.  I likely would not have been able to FIRE at 40 without that trade.

There is about a 10-15% spread on August 12 VIX bull call spreads at the 22 and 23 strikes. I am trying to get an order through now if anyone would like to be my counterparty and bet that all this pandemic stuff gets back to normal next month. Anyone? 800% payoff if you’re right.

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Re: Options heretics thread - by request
« Reply #85 on: July 14, 2020, 11:10:05 PM »
Vanguard is a bit poor with communication on margin accounts, in my opinion.  When my taxable account was approved, I didn't get a notification.  I suddenly had "buying power" in my account, and had to call customer service to confirm that margin trading had been enabled.  Last month I applied to make my Roth account enabled for margin loans, but didn't hear back, and it does not list "buying power".

ChpBstrd , Financial.Velociraptor - I think you're right that is means the account type.  My bet against Covid-19 was in a non-margin Roth account.

My choices at this point, with 2 trading days left before the July 17th expiration:
(1) sell my PUT options.  This captures some time value in exchange for giving up any profit/loss before the options expire.  For thinly traded options, this might not be possible.
(2) exercise my profitable PUT options.  I must own 100 shares to exercise one contract.  So I would buy 100 shares, exercise one contract, and receive the profit from "PUT"ing those shares in someone else's account at the strike price.  (I buy at $34, and sell at $35, for example).

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Re: Options heretics thread - by request
« Reply #86 on: July 15, 2020, 07:33:27 AM »
Last month I applied to make my Roth account enabled for margin loans, but didn't hear back, and it does not list "buying power".


Not allowed by law.  You can only margin taxable accounts.  The request for margin in Roth will either be ignored or denied. 

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Re: Options heretics thread - by request
« Reply #87 on: July 18, 2020, 04:21:10 AM »
Vanguard hasn't communicated clearly, so denial/ignored amount to the same thing.  But more importantly for this thread, I can now buy options in my Roth account.

I bought some long-term options on stock I am already holding.  Options capture upside with less investment, but also require rolling out to later dates.  Right now, I'm seeing some options have Jan 2021 and Jan 2022 with nothing in between.  Is there a general rule on when new options are created?

For example, will Mar 2021 options be created later this year?  Will Jan 2023 options be created in Jan 2021?

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Re: Options heretics thread - by request
« Reply #88 on: July 18, 2020, 10:03:25 AM »
The new LEAPS  usually roll out in October and November.  There is a schedule somewhere on the CBOE website that details how they are initiated.  There are basically two cohorts.  I believe a stock is assigned a cohort at random.

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Re: Options heretics thread - by request
« Reply #89 on: July 19, 2020, 03:06:06 AM »
That explains what I'm seeing.  In Oct/Nov 2020, LEAPS for Jan 2023 will be created.  LEAPS are always set for the third Friday in January.  Options in March or June 2021 are not LEAPS - they are standard options.

I like to track stocks in a spreadsheet, but I'm having trouble making options fit the same format.  I think there's several key fields... maybe stock price minus strike price, my cost to buy the option, current value of option, number of shares or contracts (100 shares/contract).

For those tracking options in a spreadsheet, what data are you tracking?  Is there a small number of fields that capture all the key data?

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Re: Options heretics thread - by request
« Reply #90 on: July 19, 2020, 08:55:12 AM »
For options spreadsheeting:

I have calculations set up to determine my downside protection, my annualized return (to time normalize returns), capital at risk, and the normal info like entry date, expiry, strike, count of contracts, etc.  I usually check the CBOE calculator to get my delta before pulling the trigger to make sure my statistical change of being in the money justifies the return.  That is sometimes moot if I really want to own the underlying for the long term.

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Re: Options heretics thread - by request
« Reply #91 on: July 22, 2020, 08:47:02 AM »
Options are so different from stocks, I wound up having a separate area just for options.
And then I list their rough value when adding up total assets.

Last month I sold call options on a stock I own.  I'm surprised that when someone did well and exercised the call options I sold, I was happy with it.  I sold a lot of shares at $1.60.  The person who bought my call option and exercised it forced me to hold shares until the stock passed $2.00, forcing me to have a +25% profit in a month.  And that ignores the premium they paid me, for additional profit.

Essentially I wanted to sell some stock, and instead, I sold call options.  The call options kept me invested for a profit, and paid me a premium for the contract, which was an additional profit.  It's weird to be thinking about "win win" when it's the stock market, but that's my impression.  (The stock could also have tanked, and caused a loss greater than the premium I was paid... a "lose lose").

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Re: Options heretics thread - by request
« Reply #92 on: July 23, 2020, 04:44:03 PM »
Options are so different from stocks, I wound up having a separate area just for options.
And then I list their rough value when adding up total assets.

Last month I sold call options on a stock I own.  I'm surprised that when someone did well and exercised the call options I sold, I was happy with it.  I sold a lot of shares at $1.60.  The person who bought my call option and exercised it forced me to hold shares until the stock passed $2.00, forcing me to have a +25% profit in a month.  And that ignores the premium they paid me, for additional profit.

Essentially I wanted to sell some stock, and instead, I sold call options.  The call options kept me invested for a profit, and paid me a premium for the contract, which was an additional profit.  It's weird to be thinking about "win win" when it's the stock market, but that's my impression.  (The stock could also have tanked, and caused a loss greater than the premium I was paid... a "lose lose").

But imagine having sold a covered call on Microsoft or Tesla in April or May. It would be the worst 5-10% you ever earned :)

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Re: Options heretics thread - by request
« Reply #93 on: July 24, 2020, 04:56:17 AM »
I have been trading weekies and have a goal of trying to make $500 - $1,000 a week in income.

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Re: Options heretics thread - by request
« Reply #94 on: July 25, 2020, 12:42:24 AM »
But imagine having sold a covered call on Microsoft or Tesla in April or May. It would be the worst 5-10% you ever earned :)
Probably true.  I'm in the reverse situation: the stock on which I sold covered calls was fastest, largest percentage gain I've ever had.  That probably made me less sensitive to missing out on further gains.  (The stock had already fulfilled my investment thesis for it - recovering, so I was ready to exit)

KBecks - At some point I plan to learn about "swing trading", which involves holding investments for days or weeks, like you describe.

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Re: Options heretics thread - by request
« Reply #95 on: July 25, 2020, 06:19:00 AM »
What I am doing is trading around a core position, so I might cover 1/3 or 1/2 of my shares, or write puts to add another 100.  So I am a long term investor but working around the edges with the options for extra income. 

Not all my trades work, next week might be a little rough but I'm trying to develop a - heads I win, tails I win - way of working with these.

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Re: Options heretics thread - by request
« Reply #96 on: July 25, 2020, 10:13:10 AM »
Back in March I picked dozens of deeply discounted individual stocks.  They have a much higher risk of bankruptcy, but also a far greater potential reward than the average stock.  I'm replacing some of my stock holdings with call options.

Let me use a fake number for an example.  Like owning $2000 worth of Macy's stock ($6.45/sh), or 310 shares.  Those could be replaced with Jan 2022 call options with an $8 strike price, which costs $190 per 100 share contract, or $570 to control 300 shares (strike $8).  Assuming Macy's recovers to $23/share:

310 shares rise from $6.45/sh to $23/sh, so I invested $2,000 and made a $5,130 profit
3 contracts strike $8 worth ($23-$8)x300 - $570 = $3,930 profit.
Or buy 6 contracts: ($23-$8)x600 - $1140 = $7,860 profit

Investing less means less damage if the company declares bankruptcy.  I can use some of the money that's freed up to pay "rolling forward" costs (buy a 2023 option and sell the 2022 option).  And some money could go into other investments.  The biggest danger is a Covid crisis that lasts for years, and drains the money I've set aside for rolling forward.

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Re: Options heretics thread - by request
« Reply #97 on: July 25, 2020, 10:28:02 AM »
The companies I am writing options on have share prices between $25 - $250.

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Re: Options heretics thread - by request
« Reply #98 on: July 27, 2020, 10:11:21 AM »
The conundrum with covered calls and short puts is that if the market rallies, you will miss out and have to buy back in at higher prices. If the market tanks, you have still suffered most of the damage.

You can say, “if assigned I’ll sell puts to get back in”, but by the time the stock has rallied, you will be unable to sell puts at your preferred strike price for more than a pittance. For example, I sold covered calls on a small “core” position in CRM, eventually getting called away at about $140. A series of puts sold for less than $1/share failed to get assigned over the past few months. Today the price is $190. Do I now sell puts near $190, and if assigned have I lost most of that $50/share gap? Or do I sell puts at $140, tying up large amounts of cash to earn pennies? If I choose not to play ball, do I buy a different stock or fund, thereby altering my AA? And should I not do that if that other stock or fund has gone way up too?

This may sound like a case for BnH rather than options, but my point is that when an option strategy involves a potential change of AA, the possibility of the market running away without you is a risk that cannot be ignored. It is standard to think of a covered call’s or short put’s risk profile as being the sum of all downside probabilities in cash-settled terms, but we should also factor in the risk of the stock we picked running away without us. If the stock runs away, we may never again have the purchasing power to pick up this many shares. E.g. If I was selling options on 100 shares of CRM, maybe now I can only afford 75. I have permanently lost 25 shares, all while taking almost the risk of owning 100!

This is particularly problematic for people like me who see the sum of EPS or free cash flow to be the foundations of my retirement. When you lose enough shares this way, eventually the sum of all the EPS/FCF for all your shares is less than it would have been via BnH.

You could say “When I win selling puts or calls (I.e. the price didn’t rise), I will reinvest those funds into shares of the stock”. However, stocks can rally faster (or fall faster) than you can earn premiums, as the CRM example demonstrates. So a bet on a long term option selling allocation is a bet that stocks will hold in a narrow range. If they fall too much you lose in cash terms and if they rally too much you lose share purchasing power as you enter the next play.


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Re: Options heretics thread - by request
« Reply #99 on: July 27, 2020, 04:46:59 PM »
The conundrum with covered calls and short puts is that if the market rallies, you will miss out and have to buy back in at higher prices. If the market tanks, you have still suffered most of the damage.



You are correct.  There is no "free lunch".  You have to give up something to "earn" that premium income.  Your upside is what you trade away for current income.  This is somewhat mitigated if you aren't married to a few particular tickers.  If you can pivot to something else that is attractive at the time your other shares are called away, not much is lost.

I'm personally dealing with this situation.  I sold covered calls on my NLY shares at 6.5 strike.  They were above 6.5 just before ex-div so I rolled out, picking up enough TV that my counterparty did not call away my shares.  I was hopeful that a pullback in the random walk would happen near the next expiry (this Friday) so I could roll "up and out" to 7.  NLY finished the day at 7.27. Unless I want to put more capital into the trade (net debit), I will probably roll out to 6.5 again hope to hang on long enough for a pullback or to capture another distribution in a few months.  Either way, I'm letting 10,000 dollars worth be called away this Friday.  The market is telling me a got it wrong.  I'm only 3/4 bullheaded and thus only going to partially try to go across the grain with deep(er) in the money covered calls.