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  • #16
    So I own 100 shares of XYZ that is worth $50/sh. I sell a covered call for $2/share or $200 with a strike price of $55/sh. If the stock hits $55, I have to sell it to the buyer of the call at that price. I make a profit of $5/sh or $500 plus the $200 I got for the call.

    The buyer paid $200 for the call and then has to buy the stock for $5,500. How does that benefit them?
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

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    • #17
      Originally posted by jiM_Mi View Post

      There are puts and calls

      owning a call is the right to buy the stock at the strike price
      owning a put is the right to sell a stock at the strike price

      if you buy a call, the buyer is expecting stock price to go up- buy a call with a strike price at $55 when stock is currently at $50, means if stock goes up 10%, you want to guarantee the price you buy.
      If you buy a put, the buyer is expecting stock price to go down and wants to lock in the price they sell at. Buy a put with a strike price of $45, if stock goes down 10%, you want to guarantee the price you sell at.

      For each transaction above, there is someone selling the call or put
      the seller of the call is expecting price to be neutral or go down
      the seller of the put is expecting price to be neutral or go up

      If you own the security and sell the call or put, you have limited your downside risk considerably (locking in the price where you lose the security) and can generate income if the security stays neutral. In general, the overall return of covered calls and puts should be commensurate with risk taken (ie higher than savings/ money markets) and have less downside risk than just investing in market outright.


      Oh man - I usually buy and hold funds or individual shares and then sell when I need the funds or when the fundamentals deteriorate.

      For what its worth, I'd love to see a good strategy that generated income consistently from options.
      james.c.hendrickson@gmail.com
      202.468.6043

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      • #18
        Originally posted by disneysteve View Post
        So I own 100 shares of XYZ that is worth $50/sh. I sell a covered call for $2/share or $200 with a strike price of $55/sh. If the stock hits $55, I have to sell it to the buyer of the call at that price. I make a profit of $5/sh or $500 plus the $200 I got for the call.

        The buyer paid $200 for the call and then has to buy the stock for $5,500. How does that benefit them?
        If the 100 shares moved from 50 to 60, they locked in the purchase price at $55.

        If you look at Tesla, you can buy a call with right to buy @ $250 (stock is worth way more than this- so you could buy at $250, then sell it for $277 and make $27 profit per share.
        If you buy a call for strike price of $290, you pay $.06

        one other thing to consider is options have an expiration, the contract is not perpetual.
        Last edited by jiM_Mi; 04-17-2019, 04:52 PM.

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        • #19
          Originally posted by jiM_Mi View Post

          If the 100 shares moved from 50 to 60, they locked in the purchase price at $55.
          Okay, so the buyer of the call gets to decide when to act on it (until the expiration date of the call). If they paid $2/share for the call, they need the stock price to rise by more than $2 over the strike price in order to profit.

          The buyer is betting the stock will rise. The seller is betting it won't.

          Where does one go to see what calls are being sold and for how much?
          Steve

          * Despite the high cost of living, it remains very popular.
          * Why should I pay for my daughter's education when she already knows everything?
          * There are no shortcuts to anywhere worth going.

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          • #20
            Originally posted by disneysteve View Post

            Okay, so the buyer of the call gets to decide when to act on it (until the expiration date of the call). If they paid $2/share for the call, they need the stock price to rise by more than $2 over the strike price in order to profit.

            The buyer is betting the stock will rise. The seller is betting it won't.

            Where does one go to see what calls are being sold and for how much?
            Here are the current options for Apple
            You can plug in any ticker you want o check other stocks from here

            https://www.nasdaq.com/symbol/aapl/option-chain
            Brian

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            • #21
              Originally posted by bjl584 View Post

              Here are the current options for Apple
              You can plug in any ticker you want o check other stocks from here

              https://www.nasdaq.com/symbol/aapl/option-chain
              Thanks. So is the date listed the expiration date of the call? And is the number under Last the cost per share to buy the call?
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


              • #22
                Originally posted by disneysteve View Post

                Thanks. So is the date listed the expiration date of the call? And is the number under Last the cost per share to buy the call?
                Yes. You can click the tabs at the top to look at future months.
                Options are sold in blocks of 100, so price per call or put times 100. You can't just buy 1 at a time.
                That's the power of options trading.
                It gives people the ability to control thousands of shares of a company for a low up front investment.
                Covered calls is a more conservative strategy though.
                There are countless others with unlimited reward. But, that comes with unlimited risk.
                You could potentially make hundreds of thousands of dollars in a single day. But, you could also lose your entire net worth and then some.
                Last edited by bjl584; 04-18-2019, 06:25 AM.
                Brian

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                • #23
                  Originally posted by bjl584 View Post
                  Options are sold in blocks of 100, so price per call or put times 100. You can't just buy 1 at a time.
                  I was assuming that but thanks for clarifying.

                  I can see where it could be a good income source for folks who own a lot of stock (and are willing to sell some if the strike price is hit).

                  I actually own some individual stocks. Not a lot of any one, but I've actually been thinking about selling them to condense and simplify our portfolio. Maybe I'll look into the options market on those holdings. If I sell calls, I can make a few bucks and if the price does go up, it'll force my hand to liquidate.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                  • #24
                    I used to do naked puts and calls. Those are stupid.

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                    • #25
                      The only idea I have that can improve upon the yield at a bank and keep risks extremely low if properly researched is merger arbitrage on cash only buyout deals.

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                      • #26
                        You can lose money really fast on options if you don't know what you are doing. I see people doing it and losing money. Also use a tax person to help you do the taxes on it.
                        LivingAlmostLarge Blog

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