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Originally posted by Adam
Good tradin!
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Hey Adam. No, I wasn't thinking that so much as the times when a big move against the call position puts you in the red for a short time. I focus on limiting losses, i.e. not letting them get beyond a certain %. A poor covered call position, poorly timed, and with a bit of poor luck added, you are going to feel the pain no matter how 'covered' you are. But I am perhaps overly cautious. I read with interest NB's covered call plays and perhaps if I watch long enough I'll get as confident as he and others may be hehe.
Good tradin! -
Spike, I was just beating up on you for that comment. hehe
Well, Jim said 'near term' and I don't think it will go there near term. I"m still bullish on this market and this pullback is a good buying opportunity IMO. Actually the VIX is right at the trend line resistance, doesn't mean it won't break but until it does, it going dooowwwnnn! heh... It is what it is dude, yes you're right it will go to 18 one day, I'm not disputing that. BTW I was checkin' out the blog - good work dude. Are you going to be starting a newsletter service soon or what? And everyone on this board get free copies, right?
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I'm too cheap, that's why!
DMK,Originally posted by dmk112
From my standpoint, it's simple: I don't like to spend money. Get it?
I'M TOO CHEAP!!!!
BUYING puts means I have to lay money down on the table. Now I can read a chart (sometimes), and I tell you the market is so choppy, especially at turning points in a stock's price trend, that I don't know if the put is going to be money wasted or not. Look at MFLX. Have you been following this stock with MM? He buys at $60, it drops to $53, jumps to $68, and now has fallen to $58--all in four weeks. Now suppose you bought with MM at $60, and it started to drop like a rock, and Spike posts a "caution longs!" chart that says she's going to hit the skids, so you buy a $60 put. YOU JUST GUARANTEED YOURSELF A LOSS ON THIS STOCK. You paid $3 for a $60 put, and if the stock drops to zero or goes to $60, you lost $3. If you bought the deep in the money put, the $65 put, you probably had to pay $8 for it. ANOTHER GUARANTEED LOSS. If you buy the $55 put for $1, you lost $6 on this stock! ANOTHER LOSER! My point: every put is a loser because you had to buy it.
Why spend money when they'll pay you? The covered call--imo--is a better kind of put.
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Ski
Ski,
You made a nice post on the other page with lots of info for Peanuts about covered calls. Thank you. It was good stuff.
Here's a comment cut from that post that I want to address for the others on this forum. Ski said, "If I owned a stock at $80 an it went to $95 I would want the $15 gain before anything else. Leaving the $8.50 on the table as in your example is a loss of capital in my opinion."
My response: that won't happen if you know how to play a covered call.
PLAN #1: Roll the option upwards. Example:
1. Buy stock at $60, and sell $65 call for $2.00.
2. Stock gets bad case of MoMo and starts to hustle higher. You realize that this one is going to $70, and being of the greedy sort, you want to collect all the cash from this one. What to do?
3. Buy back your first option with the money from a higher strike price. Sell a $70 call for $1, and use the $1 to go with the $2 they already gave you to buy back the $65 strike call. Now you are going to get $70 from the stock, instead of $67.
PLAN #2: 1. Buy the stock at $60, and sell the $65 call for $2, but BUY the $70 strike for $1. This way if the stock moves up past $65 you still participate in the fun.
What do I do? Never plan #2. Why? I don't like to spend money . . . .
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Greetings,
As someone with only 1 experience buying a call,and losing on it,I think NBB is on the right.
Two points,
I forget the exact number,but the percentage of options that expire worthless is overwhelming,favoring the writer.
As a friend to someone who worked the CBOT,his advice to me was to learn call writing,as its where consistent profits come from.Not the glamour of high flying stocks,but getting paid to sell something,with risk control involved.
As a side note NBB,you commented on not playing options on canroys,you are talking about TSX listing?As all the US lists show options available.
Another question is being able to sell your call at a profitable price,is this the tricky part,as it seems like the best play around.
cordially TomComment
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Ok, I'm new to options so I didn't know that when you write an option, you don't pay for it (?) Any sites good for option learning?Originally posted by New-born babyDMK,
From my standpoint, it's simple: I don't like to spend money. Get it?
I'M TOO CHEAP!!!!
BUYING puts means I have to lay money down on the table. Now I can read a chart (sometimes), and I tell you the market is so choppy, especially at turning points in a stock's price trend, that I don't know if the put is going to be money wasted or not. Look at MFLX. Have you been following this stock with MM? He buys at $60, it drops to $53, jumps to $68, and now has fallen to $58--all in four weeks. Now suppose you bought with MM at $60, and it started to drop like a rock, and Spike posts a "caution longs!" chart that says she's going to hit the skids, so you buy a $60 put. YOU JUST GUARANTEED YOURSELF A LOSS ON THIS STOCK. You paid $3 for a $60 put, and if the stock drops to zero or goes to $60, you lost $3. If you bought the deep in the money put, the $65 put, you probably had to pay $8 for it. ANOTHER GUARANTEED LOSS. If you buy the $55 put for $1, you lost $6 on this stock! ANOTHER LOSER! My point: every put is a loser because you had to buy it.
Why spend money when they'll pay you? The covered call--imo--is a better kind of put.Comment
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DMK,Originally posted by dmk112
I have to thank you for your last post. You made my mind up for me on something I have been thinking about for awhile.THE SKIRACER'S EDGE: MAKE THE EDGE IN YOUR FAVOR
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NB,Originally posted by New-born babySki,
You made a nice post on the other page with lots of info for Peanuts about covered calls. Thank you. It was good stuff.
Here's a comment cut from that post that I want to address for the others on this forum. Ski said, "If I owned a stock at $80 an it went to $95 I would want the $15 gain before anything else. Leaving the $8.50 on the table as in your example is a loss of capital in my opinion."
My response: that won't happen if you know how to play a covered call.
PLAN #1: Roll the option upwards. Example:
1. Buy stock at $60, and sell $65 call for $2.00.
2. Stock gets bad case of MoMo and starts to hustle higher. You realize that this one is going to $70, and being of the greedy sort, you want to collect all the cash from this one. What to do?
3. Buy back your first option with the money from a higher strike price. Sell a $70 call for $1, and use the $1 to go with the $2 they already gave you to buy back the $65 strike call. Now you are going to get $70 from the stock, instead of $67.
PLAN #2: 1. Buy the stock at $60, and sell the $65 call for $2, but BUY the $70 strike for $1. This way if the stock moves up past $65 you still participate in the fun.
What do I do? Never plan #2. Why? I don't like to spend money . . . .
I'm sure it would work just the way you stated except it does get real complicated and you would have to be watching that particular play very closely to stay in front of it. Do you think Peanut or any newbie would comprehend that play or be capable of instituting it the way you posted. It get to be to complicated and you also burn up alot of commissions. You also changed the parameter of the orginal play we were talking about initially. I still would rather take the gain to $95 from $80 without going through all the other stuff.THE SKIRACER'S EDGE: MAKE THE EDGE IN YOUR FAVOR
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Tom--good pointsOriginally posted by TFred
*90% expire worthless.
*75% of the time, the option BUYER loses.
*67% of the time, Bernie Shaeffer says he loses when he buys an option. He runs an option service.
Options are far more exciting and intricate than speculating or investing. When you deal in equities, you either buy them or sell them. But when you deal in options, there are 1000--or maybe even 10,000-- ways to buy and sell them.Comment
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Newbies
I must agree with ski on that point. For a new trader writing options is much more complicated than stock purchases or buying an option contract even. It takes a lot of investigation and you must be in constant control of you porfolio because like spike said a jump in the stock can cause drastic changes in the options even just for minuets at a time. That jump could go either way good or bad. If your not on top of it you won't be availible to trade it at maximum profit and may even miss a profit that was only thier for minuets.
Example. I owned some April GYMB options when it gapped up. I got too greedy and tried to get as much as I could out of the 200% jump the option took. I chased it downt to profit in the 70% area before I got my order to go through. This all happened within about 30 minuets on that morning...you must trade quickly and watch like a hawk...and don't be greedy!!!!Last edited by Adam; 04-12-2006, 11:15 AM.Comment
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Ski,Originally posted by skiracer
You are most correct: A "newbie" isn't going to get this the first day.
However, a newbie isn't going to learn to trade profitably the first day either. I do agree that options are more complicated that a simple equity trade. However, our discussion started with a covered call. So just let me ask this question point blank to you: do you think it is wrong for Peanut to sell a covered call on NSS? And if so, in one sentence or paragraph, can you say why? My point is this: options are profitable, and safer than a straight stock purchase, and the best way to get your feet wet is the covered call. Of course you should continue to study, but at least you can do this profitably while you study
And sure, I'd rather take a stock from $80 to $95 without all the other stuff, too. But how often do you do that? And how many times does the stock go from $80 to $75 or even $60 before it hits $95? What you should do is identify for Peanut (and me, too!) stocks that are going from $80 to $95 that need no exit strategy just in case we are wrong about the stock. My problem is that sometimes what I think is a winnah turns out to be a loser.
Last edited by New-born baby; 04-12-2006, 10:02 AM.Comment
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Expiring contracts
95% of contracts expire is a deceiving number. Many of those are cheap contracts far out of the money. Those also pose great risk when writing those contracts. Should the stock make a drastic move against you and your writing a naked option, a call risk is unlimited. Thus one must be even more engaged in the stock movement and it is even more important to be accurate with your reseach and choices.Comment
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Greetings,
If I understand this correctly,scenario would be buy 1000sh of ''XYZ stock at say $10,if option chain will allow,sell 10 calls for $1,that immediately puts $1000 in your acct.If stock rises above $11 by expiry,you lose your 1000shares,but still keep $1k profit,no matter how high it rises.
If stock drops you still keep $1k profit,and still own stock at whatever price it is,whether you sold options on it.
I can't see the greater risk involved,unless commisions eat too much of profit?The skill is finding a stock that you can sell the option on at a good price.I dont see how a rising options premium affects the writer,worst case your stock is bought at strike price.
what am I missing?
cordially TomComment
Yup, free newsletters for my buddies jejeje at least for a couple months harhar....especially if I see regular click fests on the sponsor ads jeje
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