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Originally posted by New-born baby
Thanks!
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Thanks!
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Greetings NBB,
Let me run one past ya,
EOG,buy 200 sh. at approx. $77,thats $15402 including IB commision.
Sell 2 May 06 $80 calls for $2.60,credit acct. $520,thats a little over 3% immediately.
Scenario 1, trades at or above $80,give up shares,but profit $520 in less than a month.
Scenario 2,trades below $80 and hovers at buy price,keep $520,plus original shares.
Scenario 3,trades way below $80,keep $520 and shares that are worth less.
I must be missing something,as it seems too good,+36% a year possible?
cordially Tom
BTW I know you mentioned it before,selling calls with IB,complicated?Looks like buying is easy.
If option is exersized,any problem with acct transfer of shares and crediting your acct with the funds?Comment
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1. No problem with them crediting your account if the shares are called away; you get paid instantly.Originally posted by TFred
2. Selling calls is very easy; just click on the 'bid' price, hit "t" and you sold the calls. To rebuy them, just click on the ask price, and you zeroed out your position.
3. Now let's consider your EOG trade:
a. Buy 200 EOG at $77, sell the $80 calls at $2.60. IF EOG is above $80, then you get $80+$2.60=$82.60-$77 initial cost=$560 PER HUNDRED SHARES. $560X2=$1120 profit. The percentage for that is 7.2% ($1120 divided by $15400) or the percentage is $1120 divided by $15400-$520 call money=$14880 real money at risk for a percentage of 7.5%. Either way, you make $560 per hundred shares.
b. EOG, if it finishes the month at $79.99, you'll keep it and the money. Sell next month's call, or exit the position with $559 profit
c. EOG, if it dives down--you have many options. If the chart is truly broken, you can sell the $75 or $70--deep in the money--and they will basically pay you enough to get your money back.
d. If you are really, really worried, sell the EOG $80 JAN 07 calls for $10.10. That's 17% between now and Jan 07 . . . or 22.66% per year . . .
I like options.
Nice work, Tom!Comment
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Greetings NBB,Originally posted by New-born baby1. No problem with them crediting your account if the shares are called away; you get paid instantly.
2. Selling calls is very easy; just click on the 'bid' price, hit "t" and you sold the calls. To rebuy them, just click on the ask price, and you zeroed out your position.
3. Now let's consider your EOG trade:
a. Buy 200 EOG at $77, sell the $80 calls at $2.60. IF EOG is above $80, then you get $80+$2.60=$82.60-$77 initial cost=$560 PER HUNDRED SHARES. $560X2=$1120 profit. The percentage for that is 7.2% ($1120 divided by $15400) or the percentage is $1120 divided by $15400-$520 call money=$14880 real money at risk for a percentage of 7.5%. Either way, you make $560 per hundred shares.
b. EOG, if it finishes the month at $79.99, you'll keep it and the money. Sell next month's call, or exit the position with $559 profit
c. EOG, if it dives down--you have many options. If the chart is truly broken, you can sell the $75 or $70--deep in the money--and they will basically pay you enough to get your money back.
d. If you are really, really worried, sell the EOG $80 JAN 07 calls for $10.10. That's 17% between now and Jan 07 . . . or 22.66% per year . . .
I like options.
Nice work, Tom!
Im sorry to keep picking your brain,but I''ll do it anyhow.
I think my option trader may be set up differently ,as it seems like clicking the bid looks like I would be buying the option.I haven't had time to go through the tutorial yet.
I am looking to pick up EOG around these prices,and looking to sell the calls at a higher price,since they dropped yesterday with the stock price.Do you ever wait for a pullback to make your stock purchase,and wait for the premium to go up before selling the call?
cordially Tom
THX for the head up on EIT.UNComment
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Tom,\Originally posted by TFred
If you click on the BID price, you are going to get paid money. That means you sold the call, and someone can call your stock away. It works that way for everybody This may help you: on the page that you look at your stocks, put the options in with that stock. For example, EOG. Type in EOG on a line, then when the box opens, it asks you if you want the stock, option, future, etc. Put your pointer on "option" and another box opens, asking "call/put" and "strike" and month. Answer those questions, and your options will be right next to the stock. And yes, BID is the selling of an option, and "ask" is the buying of one.
Yes, if I am bullish the stock, buy the stock on a pullback and sell the calls when the price moves up. Another play, if you sell the calls too early, is to roll the options to a higher strike price, or roll them out to the next month.
You can ask me a question anytime
Last edited by New-born baby; 04-25-2006, 10:21 AM.Comment
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Greetings,
Thanks,your a gentleman and a scholar,if I ever get thi stuff down,I might have to quit my Job and do it full time.
cordially TomComment
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TFred,Originally posted by TFredGreetings,
Thanks,your a gentleman and a scholar,if I ever get thi stuff down,I might have to quit my Job and do it full time.
cordially Tom
Know your parameters and what you are trading inside an out. Don't think for a moment that there isn't any downside. If there wasn't any downside or chance of losing on a larger scale then everyone who had a buck would be doing it and they would all be rich. I would venture to say that if NB is getting rich or making it hand over fist selling covered calls then he would be posting those trades everyday on a daily basis. Nothing personal but there are hundreds, probably thousands of traders out there who are alot smarter than us who are looking to borrow money for their next can't lose covered call trade. Nothing is a sure thing with minimum downside risk unless like Spike you stop them at 1 or 2 % which isn't a bad strategy.THE SKIRACER'S EDGE: MAKE THE EDGE IN YOUR FAVOR
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Greetings Skiracer,Originally posted by skiracer
I can understand your skepticism,I don't pretend to know much about covered calls obviously since I need instruction on how to even sell them.That said,the original buy at 77.38 of EOG is now down to 73.30,or approx. $800.00,had I sold the calls,I'd be down only $280.From my perspective if your bullish on the stock,selling the right call at the right price only limits your upside if it gets optioned away.
Without alot of knowledge about this,Im assuming I could have sold the EOG shares,and purchased them cheaper if it continues to fall?The calls would be naked,but if its dropping and you keep an eye on its price action,it seems managable.I could be entirely wrong.
I've gotten so much from NBB and Spike,getting me to switch to IB is only the tip of the iceberg.If you could chart the condition of the field I work in,it would look like one moving to the ''pinkies''.I'm hoping to develop enough skills to trade full time,and I need to learn every edge I can get.Wish me luck cause every day my job gets worse.I made $45 trading YMs with Spike during lunch,appox.20 mins,it seems meager,but its a start.
cordially TomComment
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Tom,Originally posted by TFred
You can sell naked calls, i.e., sell the call and have no stock. There's danger in it if you aren't watching. With IB, you can set "conditional buys" that if the stock jumps, on the second buy at your pre-determined price it will enter an order for you.
EOG: if you saw it falling, you can sell and rebuy later. Or you can sell your call, too. Or you can let it ride. You do realize that you have one month to go still until expiration. If you sell the $75 call right now, they will give you $270 per hundred, or $77.70 per share. That's a profit from your buy-in. What's wrong with that? In my opinion, it beats taking a loss. Had you sold the $80 calls, you could keep most of that money and sell the $75 calls, too and still take the full profit out of it on May 21.
One more thing: do you know anybody making 100% in the market every year? Fund managers don't. In fact fund manager underperform the market over time. But if you take 2.5% per month out of the market, you make 30% per year, and double your money every three years. If you make 5% per month, you make 60%, and double your money every 16 months. And if you don't take losses, did you know you don't lose money? If you had sold the calls on EOG you'd have all of your original profit target still in hand.
IN summary, trying to hit home runs leads to a lot of strike outs. But if you hit singles every time, and never make an out, you still score a lot of runs.Last edited by New-born baby; 04-26-2006, 06:32 AM.Comment
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TFred,Originally posted by TFred
NB makes it sound like there is no downside. The problem is that there is downside. I just wanted to remind you that there is downside. NB says that if a trade starts to go the wrong way then sell another call to cover that trade. Well if the first one was the covered call then then those shares belong to someone else already and the next bundle of shares you sell you don't really have in your possession or own an you will begin to sell naked positions. I don't think selling naked calls is completely legal, I could be wrong, but when selling something that you don't own but in a sense you are stating that you do then when someone wants those shares you're scrambling to get them at any cost to cover. You would also have to be in front of your screen all the time when dealing with selling naked calls to be able to cover your ass. It's your money an you'll do what you want to do but there is danger in all of it. Just trying to present a practical look at the downside which NB hasn't given you.THE SKIRACER'S EDGE: MAKE THE EDGE IN YOUR FAVOR
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EOG*Option Strategies
Tom/Ski,Originally posted by skiracer
Selling naked calls is most certainly legal, or else IB would not allow it. Ski, perhaps you might do some research and look at all the "bear call spreads" and other option plays that a person can do. There are a lot of sites on the web, YaHoo! Optionetics for example, that would give you information on these strategies.
Now back to EOG: Tom could have sold those shares and rebought them. I usually don't do that. Question: do you now how far it is going to fall? Probably not. We can see support on the chart, but who knows if it holds, or if it stops between now and the support we see. But you CAN see that the $75 MAY call is going to net you $270, and your first call has dropped in price already. Remember you got $260 for it, right? Well now you can rebuy it for $110. That's $150 PROFIT RIGHT NOW per contract. Rebuy the first call and sell the second one and you have a guaranteed profit. ($75+$2.70+1.50=$79.20) What you will have to decide for yourself is whether getting $79.20 for a $77.34 stock is better than getting $73 or even lower. PnF shows a "high pole warning" on EOG that developed 25 Apr 2006. That means that most likely more downside is coming because the pattern has been damaged.
Let's see, $79.20-$77.34=$1.86 or a 2.4% profit. Now, remember I said that if you earn 2.5% per month, you'll make 30% this year, and double your money every 3 years? Now let's suppose that you only take trades with a possible 5% profit, you never take a loss, and the trades that don't work out (like this one) still nets you 2.4% . . . you could make 50% per year this way.
You will have to decide what is better. Perhaps Ski is right. He most certainly is correct to say that you might give up some upside. My response is that I am sacrificing some upside for some pretty good insurance.Last edited by New-born baby; 04-26-2006, 09:21 AM.Comment
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Tom
Tom,
Worried about giving up too much upside if you sell a covered call? Here's how to milk more out of the cow.
Question: "If we buy a call option we may execute "roll ups "if the stock moves in our favor. What does this mean and how do I do it?? THANKS IN ADVANCE. "
- William (Asked March 23, 2006 - 10:44 AM)
Answer: "Hi William,
Rollups are one of the most important tools that an option trader has. They are, unfortunately, also one of the most underutilized tools; this is usually for no other reason than traders do not know about them. So we’re going to step you through the mechanics of a rollup!
To understand the rollup, you must understand a very important property of option pricing. That is, lower strike calls are always more expensive than higher strikes. For puts, the reverse is true and higher strike puts are always more valuable than lower strikes. (This property assumes we’re talking about the same stock and time to expiration.) If these conditions do not hold, arbitrage is possible.
Without getting into the math of why this principle must hold, we can understand it intuitively. For example, assume you are looking at one-month call options on a particular stock and find the $50 call is $3 and so is the $55 call. Which would you choose? Obviously, you should choose the $50 call since it gives you the right to buy stock for LESS money so it should be more desirable. If it is more desirable, it should be worth more money. You could buy the $50 call and sell the $55 call for no money and have the potential to make the $5 difference in strikes, which is too good to be true. As traders figure this out, the buying pressure on the $50 call and selling pressure on the $55 call will eventually make the $50 call more expensive than the $55 call.
Now that you understand that principle, let’s see how to execute the rollup and why it works. Assume you buy a $50 call for $3 and the stock starts moving in your favor. The $50 call is now worth $5 and the $55 call is worth $3. You could place an order to sell your $50 call and simultaneously buy the $55 call. You’ll receive $5 from the sale and will spend $3 for the purchase thus bringing in a net credit of $2. Doing so, you have now given up the $50 call and are now holding the $55 call – you have rolled up in strikes. What is the advantage? In this example, you received a net credit of $2. While we don’t know what your exact credit will be we do know that you will always receive a credit since you are selling the more valuable lower strike call. Every time you execute a rollup, you sweep credit into the account thus reducing your risk while staying in the position. In this example, you started with a net debit of $3 when you bought the $50 call. After the rollup, you received a net credit of $2. Effectively, you are now holding the $55 call for a cost of $1.
Rollups allow you to stay in positions for longer periods of time because it removes risk by sweeping money off the table. The same principle can be applied to puts, which is called a “roll down” since you are rolling from a higher strike to a lower one for a net credit. As a general rule, you should execute the rollup (or roll down) every time the stock crosses the next higher strike. For example, if you buy the $50 call with the stock at $50, you should consider rolling it up once the stock crosses $55. Of course, you must consider the net credit after commission and see if it is worthwhile. But you can be sure that at some point it will definitely pay to roll up (or down) as the stock moves in your favor. "
- Ron IanieriComment
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Sirf
Here's a chance for you to watch the option call strategy in real time. I own SIRF at $37.17. I sold the $35 MAY calls at $4.40, and I sold two $45 MAY calls, one at $.50 and another at $.55, for a total of $110. So currently my investment in SIRF looks like this:
$37.17-$4.40-$1.05=$31.72. It is set to be called away at $35. However, SIRF has a bearish target of $28, and last night, after hours, SIRF plunged down to $34.30 (huge support here).
Question: will this support hold? I don't know. I doubt it. I think $28 or lower is coming.
Question: why didn't you sell it? I don't want to take a loss.
Question: how will you try to avoid a loss? I will sell successively lower strikes until I have my stock called away at a profit (hopefully). If SIRF goes to Zero, I may have a problem But if I sell enough calls, I may not.
Last edited by New-born baby; 04-26-2006, 09:23 AM.Comment
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Sirf Update
SIRF is right now trading at $35. I could cover my $35 MAY calls (received $4.40) for $2--and sell the stock and up a little right here. Paid $37.17-2.40 call profit-$35-$1.05 (cover cost $10)for the stock=$118 profit. Not going to take it. I want some more.Comment
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