Investment BS Thread - Stocks/Futures/Mutual Funds/Bonds/Commodities/Options/ETFs/401ks/Etc

Gonna try to catch APRN on a dip for a quick buck.. we will see. Still keeping an eye on ZEN and SQ for the long run

 

Just bought my first options contract

 

You pretty much try to "predict" the price movement by a certain timeframe.. the closer it gets to that price the more the contract is worth. No clue about actually exercising the contract.. I have been told that many do not actually use the contracts... they merely trade them

 

well the downside is I can lose $78, but the upside is $6,000+... not sure how that works out, I am assuming it means if I buy the contract of 100 shares and sell it and the stock is somehow at $0 then I would make that much money... obviously not likely.

 

yeah, I still need to figure out what the hell the difference between buying a put and selling a call is... there is requirement to fulfill the contract on one end but not the other. I currently "own" a put, so if I sell it I'm not sure what that'll mean. Lol. This is why I only bought one option

 

How did you get onto this contract? Is it something you bought through your broker?

 

Can’t believe I just typed this all out - hope it makes sense, enjoy the rambling:


Options are very confusing at first, and addicting once you understand.

The best way to understand is to start YouTubing to learn.

Let’s do a quick couple of examples to help y’all out.

I own 100 MU shares. I sell a covered call (since I actually own the shares) with an expiration of 7/20 and a strike of 70. Let’s say this option is priced at $2.30, but since each option has 100 shares in it I immediately pocket $230 by selling this call. What I am doing is saying to the market “I am selling this option in hopes that the price of MU is below 70 by 7/20 otherwise the contract buyer could potentially execute and carry my shares away.

Let’s say you’re looking at buying a MU 7/20 call. Before doing so you made sure to check volume, open interest and volatility. Open interest is the total options being traded for that date and strike price. If there isn’t a lot of open interest there won’t be a lot of volume. Volume: without it your SOL. Imagine buying the contract and being up that $6000 but no one will buy the call from you... you’re absolutely stuck and will either need to set a sell order super cheap or execute the contract. Volatility and Delta are harder to explain - but they will slowly deteriorate the price of the contract. Your $78 contract Thunder, if the price doesn’t move at all between today and tomorrow will be less then $78, because there is less time for that option to become profitable.

So you bought my 7/20 call. Your hoping that 1. The price goes up quick so you can flip it and 2. Your breakeven is 72.3 (strike plus contract price) if you hold all the way through execution. If the price of MU tomorrow goes up by 3% you’re likely going to go up close to 15-30% (again check out YouTube to understand the Greeks). You could sell the option now for a sweet gain. Or you can hold... let’s say it’s 7/19 and MU is at $76 per share. You are above the breakeven. That option is now trading at close to $6-7 (or $600-700 for the true price). You decide to execute the option because you believe that MU will keep rising and you want to own some shares. You’ll pay $7000 for those 100 shares ($70 strike). You now own 100 MU shares for $7000 and the current equity of those shares is $7600. Congrats!

But as the seller, I’m bummed you executed and took my shares away - but I still made money. Let’s say I bought the shares at $50, you took them from me at $70 so I still made $20 bucks a share, along with the $230 for the contract I sold.

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Theoretics aside, once you understand this it opens up a whole new world. Lets say I own 10,000 shares and sold 100 of those calls. Better yet let’s say I sell the calls for a month away expiration, and I do so every single month (as long as the price doesn’t get above my strike price they won’t get taken from me). So whatever happens to the price action of the stock ( as long as it stays below my strike) I’ll be making $23,000 every month selling options, along with making unrealized gains or losses for holding my shares.

Now you have Out of the money and in the money options. OTM is riskier, but the gains can be incredible. ITM gains are not as incredible, but are much safer.

——————

Here’s another example: options that expire in 4-5 months are more expenisve then options which expire in a week. Why? Because I’m not going to risk losing my shares for a messily $230 an option. If I set a strike for 70 for January 2019, I want to make sure that I get some damn good money for it since it’s very possible it’ll be over 70 by then. So I’ll sell each contract for $11, or $1100 total cost. These options will move very slowly as the daily price action doesn’t affect the long term as much.

But let’s say I buy some SPY weeklies. Today closed at 274.80. I buy an option for Friday the 8th at close, with a strike of 276 for .80 or $80. If SPY decides to rally tomorrow and goes up just 1%, my option is going to go up nearly 100%.

If you want to understand the risks and rewards better go to reddit/wallstreetbets. You’ll see guys spend $10,000 on options. You’ll see guys turn that into $20,000 and you’ll see people lose it all. Weekly options are addictive. They’re gambling. There isn’t much room for error compared to options expiring in 2-3 months.

———-

How this applies to my trading strategy. I actually trade weekly SPY calls and puts on a daily basis. I also buy calls and puts for stocks 2-12 months out depending where I think the price will go.

I also sell a lot of covered calls, very very OTM so my stocks don’t get taken from me, but I get to enjoy the premiums for selling.

If I were you I would hold that $78 option all the way through expiration. Consider it $78 gone. Watch what it does on up days and down days. Watch how for the first 5 minutes the market opens how crazy the price will jump upwards or downwards. This will help you understand the volatility and Delta involved. Best bet is that come expiration day it’s now worth over $78. But even if you lose that $78 you’ll get an incredible lesson out of it.

My first options I spent about $800 and lost it all within a week. My next set of options I spent $2000 and turned it into $4000 within 2 weeks. At one point I was down close to 50%, and at other points up almost 300%. It’s addicting.

Again, YouTube to understand, Wallstreetbets to learn from other’s mistakes and fortunes.

 

Thanks for the awesome info! Will have to read and reread this. Was wondering what my options are... pun not intended.. for this contract? Since I now "own" a put contract.. can I sell the contract? Or do I need to hold it till expiration? If I sell the contract, I am expected to give the buyer $6100 in shares if it reaches the strike price?

I'm thinking I should have bought options in Stein Mart now lol

 

What’s the whole contract? Ticker, strike, expiration?

 

SQ - bought $61 put, 6/8 Exp

 

Cool! Playing both sides! Always love that, hope you’ve still got that 55 buy order on.

So I’m going to assume your using RH. But you can buy a contract(s) and sell the same day and it just counts as a day trade. So you can sell it tomorrow all the way through 3PM (EST) on the 8th. Robinhood will automatically sell it on the day of expiration about an hour before market close so you shouldn’t need to worry about the contract executing on you and having to buy 100 SQ shares.

Right now your just hoping the price of SQ goes down so you get the gains. Tech’s on a rally right now so I wish you luck. Try to watch what the contract does right at market open.

@memario1214 I could never imagine the scenario I would want to sell a naked call haha. Screw that. Cheers

 

ah, I figured that would be the case. So if I want to sell the put that I have, I would just sell it like I would a stock, with no concerns of having to execute contract?

 

if the put contract is almost at/below strike price what should I do? Sell the contract?

 

Your chance to sell was earlier! Woulda made some money for sure on that dip. But yes you can sell anytime - that’s up to you.

I will say I bought some SQ at 60.6. Will add on dips, agreed with everyone else that this is an excellent long term play.

 

I know I was in a meeting. Only would have netted me $20 or so lol. I assume the decay will get me before the price does at this point

 

I saw that too, may buy back in around 2.80