Author Topic: Who is doing Options trading?  (Read 5335 times)

Mr Mark

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Who is doing Options trading?
« on: February 07, 2017, 02:50:07 AM »
Can I sell options inside my Vanguard IRA account?

For those fellow mustachians doing the covered option selling strategy, what is your preferred platform? My problem is I only hold my individual stocks inside my IRA. I like the idea of doing a bit of options trading (covered calls) to give returns a boost, but unsure how to do it within Vanguard.


Interest Compound

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Re: Who is doing Options trading?
« Reply #1 on: February 07, 2017, 06:44:51 AM »
Bad idea.

Do you think you know more, or can otherwise make better decisions than everyone else out there? People with significantly more money (billions of $), resources (multi-billion $ corporations behind them, with super computers), time (they're working on this 80 hours a week, it's literally all they do), and experience?

To the point where you can have a non-related full-time job, come home, read a few pages of text on a blog somewhere while relaxing after work, and literally take money from people who are (frankly) much smarter than you?

Please, don't take this as a personal attack. These are the questions everyone should ask themselves before they consider making a move like this. Expecting a strategy you read on a blog somewhere to result in successfully winning against people like this, is like expecting to beat Lebron James in basketball because you read on a blog that the three-point line on the sides are much closer to the basket.

It's a zero-sum game, don't waste your time.

Financial.Velociraptor

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Re: Who is doing Options trading?
« Reply #2 on: February 07, 2017, 09:14:14 AM »
I blog almost exclusively about selling options for income.  You can do it in an IRA or other tax advantaged account so long as you aren't using any form of margin (covered call, 100% cash secured put). 

You are potentially giving away upside gains for upfront cash and lowered volatility.  I like that exchange.  As you can see, a lot of Mustachians don't.  Educate yourself.

tarheeldan

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Re: Who is doing Options trading?
« Reply #3 on: February 07, 2017, 09:15:46 AM »
You'd have to apply for options trading with Vanguard brokerage. Your IRA there should be classified as a brokerage account.

That being said, expected value of the strategy is negative, unless you have some way of determining that the options are not being priced correctly.

It's likely to be picking pennies in front a steamroller


You might gain a few bucks here and there but when there's a rally you'll miss out (probably) much bigger gains you could have had on the volumes you wrote calls against. You might try a collar (buy otm to limit losses), but assuming the market is working you still won't make any money and the b/o spreads and transactions costs will get you.

KBecks

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Re: Who is doing Options trading?
« Reply #4 on: February 07, 2017, 09:18:35 AM »
I do it on a limited basis.  I also use Vanguard, but I may switch to another broker who is more advanced / lower commissions.

In a Vanguard IRA you can do cash-secured puts and covered calls.   You will need to apply for permission to do these things.  Call them if you have any questions.

I use Motley Fool Options as a conservative educational and ideas tool.

FV I will have to check out your blog.

jakubdudek

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Re: Who is doing Options trading?
« Reply #5 on: February 07, 2017, 12:00:32 PM »
The Chicago board option exchange claims that a 2% out of money covered call strategy against the index (like the s&p) will beat the market in the long term.  They do have historical data showing performance over a few decades.  Interesting article about it here:

http://seekingalpha.com/article/596391-covered-call-portfolios-a-look-at-historical-performance

There are challenges when it comes to implementing this as an individual investor (trading fees and bid-asks spreads being some)

Personally, I have tried playing with this a bit and in the end made/lost no money.  The effort just didn't really seem worth it in the end.

Kroaler

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Re: Who is doing Options trading?
« Reply #6 on: February 07, 2017, 04:21:16 PM »
I came here with basically no understanding of the terminology used in this thread.


Anyone have suggestions for blogs or information websites so that I can understand WTF you guys are talking about?

Retire-Canada

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Re: Who is doing Options trading?
« Reply #7 on: February 07, 2017, 04:23:28 PM »
I came here with basically no understanding of the terminology used in this thread.

Anyone have suggestions for blogs or information websites so that I can understand WTF you guys are talking about?

http://www.investopedia.com/university/options/

Google will provide you with plenty more options for learning about this topic.

Kroaler

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Re: Who is doing Options trading?
« Reply #8 on: February 07, 2017, 04:26:33 PM »
Thanks!

jjcamembert

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Re: Who is doing Options trading?
« Reply #9 on: February 07, 2017, 05:54:38 PM »
I've been doing covered calls and cash-secured puts for years, but have just in the last year been learning and experimenting with other options strategies.

I agree with what PizzaSteve said, and to put it another way you won't be "boosting your returns" with covered calls, but you will be reducing your risk. If the stock goes up, you'll make less money, and if it goes down, you'll lose less money.

So like anything, the covered call isn't a one-shot strategy: it's one tool among many. But I'd encourage you to try it out as a stepping-stone in learning about options if that's what you're interested in. You'll be furthering your financial education and if you're already long stock, you can't lose any more money than you would already by owning stock.

ChpBstrd

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Re: Who is doing Options trading?
« Reply #10 on: February 07, 2017, 09:49:30 PM »
Haha. I'm trying to quit.

I've lost gains on covered calls. Lost my butt buying puts on stuff I was sure was going to go down. I've also made 1200 in 30 days selling puts on shares I was going to buy and hold anyway. It's gambling.

Once I realized I'd spent $500 in commissions, I vowed to either get out or move from my high-price broker to Interactive Brokers - the cheapest.

Now I've limited myself to selling puts as a way of deploying cash into buy-and-hold investments.

If you're really interesting in "juicing" returns with options, there are Closed Ended Funds that will perform this professional service for you at a fraction of the cost in commissions.

At some point, though, you realize you're working your butt off to get the same returns you would get if you just increased your portfolio beta - i.e. took on more risk. When you can explain how an option strategy reduces risk, then you're ready to make your first trade.

KBecks

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Re: Who is doing Options trading?
« Reply #11 on: February 08, 2017, 05:48:18 AM »
And note that when using options, you're a more active trader and need to pay attention to your expirations, etc.  Fees can eat at your returns also. 

I think it's a good tool to learn and have in your toolbox if you are an active investor.  I know some retired guys who trade options for income, but they're already rich and retired and they use it for their spending money / play money.

I use a service because I would not do options on my own.  I pay for "coaching" from Motley Fool Options, and they have a high accuracy rate, much better than mine would be. 

It depends on where you are in your stache building, I would not use options until you had a fairly large stache and wanted to learn more.

Mr Mark

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Re: Who is doing Options trading?
« Reply #12 on: February 08, 2017, 06:48:42 AM »
Thanks for the advice team!

Yes, I know it's likely suboptimal long term and I may well singe a few whiskers. MMMV

But it's for my 'entertainment' active stock trading play account. I've got several lots of 100 shares I can write covered calls on, and it's in the tax protected account.

I'm not investing the 'stach this way.

KBecks

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Re: Who is doing Options trading?
« Reply #13 on: February 08, 2017, 07:20:27 AM »
Check out dollarfor40cents.com as a screener.  Your stocks may or may not have good payouts for covered call writing.  Generally, you sell calls when shares are high, sell puts when shares are low.  Target 1% per month return.   You may want to buy-write on stocks that are more attractive for options than your core portfolio positions.

Be careful out there.  I have only done options for a few years.  I mostly do short puts, short calls and I've done a few diagonals, I can't do them in my IRA at Vanguard but some brokers may allow this.  I've also bought LEAPS calls for leveraged appreciation.  Warning, you can lose 100% of investment.

I like MF Options -- contact the customer service if you are interested in pricing.  They open to new members once or twice a year.  If you have a larger stache you can pay for prudent education.