Don't trade stock options breh...

[Macallik86]

tbh I wouldn't advise these either because they're much higher premium, and reduce the leverage. I wouldn't advise anyone to do any options or option strategies.

LEAPS and their high premium (extrinsic value) is actually valuable though imo because unless Implied Volatility is high when you buy, you are buying time and it gives you time to get in/out if the market goes against you.

But yeah, I recommend against options trading unless you are comfortable with stock. Alternatively if you are a real strategist and are interested in directionless bets and/or low-risk low-reward strategies like Deep-In-The-Money covered calls.

 

[Menelik II]

LEAPS and their high premium (extrinsic value) is actually valuable though imo because unless Implied Volatility is high when you buy, you are buying time and it gives you time to get in/out if the market goes against you.

A) It's high price means your leverage is lower. B) this extra time you pay for, this is factored in and why the price is that high to begin with

Alternatively if you are a real strategist and are interested in directionless bets and/or low-risk low-reward strategies like Deep-In-The-Money covered calls.

Again I wouldn't advise this either. You're telling someone to sell otm options in an inefficient way and saying it's low risk. We called this "picking up pennies on the train track". Most of the time you make small, then 1 day you lose your house.

 

[Macallik86]

No disrespect but I disagree with you on a few things:

A) It's high price means your leverage is lower. B) this extra time you pay for, this is factored in and why the price is that high to begin with

A) Lowered leverage means less risk. Hence it is a less 'risky' strategy
B) Expensive options means that something is being factored into the cost. It could be intrinsic value or extrinsic value. If you are buying options with a lot of Extrinsic Value, it is preferable that this value is made up based on something concrete such as time-to-expiration and not something that is fleeting such as high implied volatility. Extrinsic value can and often will evaporate overnight if it is based off of an expected price move after an Earnings Report. On the other hand, if Extrinsic Value is based off of the time until expiration, the extrinsic value will also evaporate, but at a rate that is much slower and much more predictable.

By no means am I suggesting that Option Trading is for everyone or that it is a good starting point for anyone in the forum, but there are strategies that are less 'risky' than others.

Again I wouldn't advise this either. You're telling someone to sell otm options in an inefficient way and saying it's low risk. We called this "picking up pennies on the train track". Most of the time you make small, then 1 day you lose your house.

I understand why you thought I was referring to OTM covered calls because there are a lot of poor advice online that touts it as a good idea, but I think you misread what I said..

If you reread my post, I am referring to DITM covered calls which provide much greater downside protection than most (any?) other strategies as well as a higher probability of being profitable (albeit with much lower profit potential). Strategically and in terms of risk, there is a difference between selling naked options, selling OTM options and selling DITM options.

Here is an example using current market quotes:
SPY is at $227
SPY March Calls $220 are selling for $9.57
The intrinsic/actual value for the March $220 calls are actually only $7 since they are $7 in the money. $2.57 of the price is extrinsic and will evaporate as the option gets closer to expiration and closer to parity.

So, if you buy SPY @ $227 and sell the calls @ $9.57 then you make $2.57 as long as SPY doesn't drop below $220. In the 2 months until expiration, the stock can go higher/stay the same or go lower by 7 points and you are still guaranteed profit.

 

[Menelik II]

No disrespect but I disagree with you on a few things:

A) Lowered leverage means less risk. Hence it is a less 'risky' strategy
B) Expensive options means that something is being factored into the cost. It could be intrinsic value or extrinsic value.

Yes they are expensive for a reason, you have to pay for that luxury of time etc. For a few reasons it's not good for private guys to buy long dated options, but this is just a preference thing.

I understand why you thought I was referring to OTM covered calls because there are a lot of poor advice online that touts it as a good idea, but I think you misread what I said..

If you reread my post, I am referring to DITM covered calls which provide much greater downside protection than most (any?) other strategies as well as a higher probability of being profitable (albeit with much lower profit potential). Strategically and in terms of risk, there is a difference between selling naked options, selling OTM options and selling DITM options.

No I know what you meant and said. What you are doing is effectively selling a naked put option at $220. Selling a call and buying the underlying is the same as selling a put, apart from you've done more trades. This is why I would it's also inefficient.
It doesn't provide any protection at all- you're selling options, so you're selling protection.
Your last sentence is factually incorrect.

All This is all due to put call parity, you can synthetically replicate a put/call by trading a call/put + underlying. (I couldn't find a simple explanation for you online, it's easiest explained by graphs)

Anyway, this highlights my original point. You obviously have some decent level of understanding, but you don't know what you're doing and what risks you're actually taking on. In this case if the stock went to $150 you would be decimated.

 

[Macallik86]

No I know what you meant and said.

Ok. You originally referred to the DITM strategy as OTM which raised a red flag initially.

What you are doing is effectively selling a naked put option at $220. Selling a call and buying the underlying is the same as selling a put, apart from you've done more trades. This is why I would it's also inefficient.
It doesn't provide any protection at all- you're selling options, so you're selling protection.

Yeah, good breakdown of the position. I still think protection is offered if you already own the stock (and intend on holding the stock beyond the option's expiration) but that was not what we were talking about, so I stand corrected.

All This is all due to put call parity, you can synthetically replicate a put/call by trading a call/put + underlying. (I couldn't find a simple explanation for you online, it's easiest explained by graphs)

I have been thinking about what you said and yes, the positions are exactly the same.

Anyway, this highlights my original point. You obviously have some decent level of understanding, but you don't know what you're doing and what risks you're actually taking on. In this case if the stock went to $150 you would be decimated.

I have been away from the markets for a year or two and my knowledge/memory is not where it needs to be. I've started rereading Options As A Strategic Investment by McMillian to bridge some of the gaps. Although I think the chances of SPY falling to $220 anytime soon is improbable, I have read enough about probability and black swan events to know that, in retrospect, it is a bet that is not worth making.

 

[franknitty711]

tbh I wouldn't advise these either because they're much higher premium, and reduce the leverage. I wouldn't advise anyone to do any options or option strategies.

I disagree - there is value in options if you do your research and DD. If you are confident in your trade enough the different strategies will drive how much you profit. Of course with the longer term you may pay more of a premium, but if you are not trying to hit a home run what is wrong with taking profits? I tend to lean more on this strategy and not gamble on the short term. I used to have time to trade more frequently but that all changed the last couple of years.

I am doing well on my SHLD short. It has been a live play since the beginning of 2016 and my options are about in the range where I want to close my position. There are a few cats on here that probably remember me telling people about shorting Sears. I spent a lot of time researching that company before I came up with this plan.

 

[Menelik II]

I disagree - there is value in options if you do your research and DD. If you are confident in your trade enough the different strategies will drive how much you profit. Of course with the longer term you may pay more of a premium, but if you are not trying to hit a home run what is wrong with taking profits? I tend to lean more on this strategy and not gamble on the short term. I used to have time to trade more frequently but that all changed the last couple of years.

I am doing well on my SHLD short. It has been a live play since the beginning of 2016 and my options are about in the range where I want to close my position. There are a few cats on here that probably remember me telling people about shorting Sears. I spent a lot of time researching that company before I came up with this plan.

I wouldn't recommend for people to trade them simply because there are multiple factors that affect the price of an option not just the stock price. Also the price moves of options are non linear, so it's hard to know what your pnl is in various scenarios.

If you buy a call option, there will be times that the stock price goes up and you still lose money. You can you all the DD you want and you get the right move and still lose.

 

[Amerikan Melanin]

Anyone still doing this?

What happened to the OP?

 

[Truetalk]

I wouldn't recommend for people to trade them simply because there are multiple factors that affect the price of an option not just the stock price. Also the price moves of options are non linear, so it's hard to know what your pnl is in various scenarios.

If you buy a call option, there will be times that the stock price goes up and you still lose money. You can you all the DD you want and you get the right move and still lose.

Depends on volume and implied volatility on whether it goes up or down also in the money position matters too far out the money you may lose regardless of price movement from my experience

 

[PikaDaDon]

Anyone still doing this?

What happened to the OP?

Breh probably lost his home.

Futures, Forwards, Options

They're all 'financial derivatives' and aren't beginner-friendly. The derivatives market is a multi trillion dollar market and it's mostly hedge funds that trade these assets.

Recommended book:

Edit: Guess you can't post amazon links here

 

[PikaDaDon]

Some more educational resources

https://optionalpha.com/
https://www.tastytrade.com/tt/learn

 

[Jimmy Two-Times™]

Damn, I can't even message OP because he got banned.


So, can anyone else give their 2-cents on what OP has proposed and have any of you noticed misinformation.


This thread seemed exactly like something I wanted to enquire about.

 

[Mr. Manhattan]

I'm just gonna avoid anything that involves trading and just invest

 

[theworldismine13]

gotta co sign this thread, i started messing around with the options on robinhood for free

i think options may be better than stocks, i made a few calls and was up 50-100 percent in a couple of days, obviously i got lucky but i think with more research it can be better than buying stocks

ive alos been taking the 12 Free Options Trading Courses | #1 Options Trading Education classes and other youtube info

 

[mson]

gotta co sign this thread, i started messing around with the options on robinhood for free

i think options may be better than stocks, i made a few calls and was up 50-100 percetn ina couple of days.obviosuyl i got lucky but i think with more researach it can be better than buying stocks

ive alos been taking the 12 Free Options Trading Courses | #1 Options Trading Education classes and other youtube info

How do you like Robinhood?