<p>well have fun at that party 
</p>
<p>Do I finally get all these acronyms right? atm(above the money), itm(in the money)
I would think each strategy base on how bullish/not as bullish/not as bearish/bearsih one feel about a stock, no?
I employ different strategy for how I feel about a stock. But the most likely scenario is a stock that has been out of favor for long like XRX, I thought it had disappear as a company but saw and ad about it on TV and took a gamble. It worked out great last year but I think it has been an anomaly because the market was up and up.</p>
<p>I am waiting for a raffle…</p>
<p>"If I buy a stock at 100 and sell a call for 10 and the stock drops to 90, I’m at breakeven.
If I sell a put for 10 when the stock is 100 and it drops to 90.01, I made 10, if it drops to 89.99 and I don’t roll it out but get assigned, I still made 10 but I own the stock at 90 unlike the covered call case where I’ve made nothing. My breakeven is 80 in the put case.</p>
<p>On the other hand, if the stock goes above 100, with the put case, I only make 10 while with the covered call case I can make a maximum of 20 at 110."</p>
<p>Check the math…</p>
<p>not me. I start with the assumption that I don’t know sh** about the market even though I do suspect a correction near term and a market that is higher than today by the end of the year. Of course, I’m not sure that is the way I really feel or this is just what everybody is saying so I accept it. Since I start off with my assumption, I look for ways of getting at least the return of the market and protecting on the downside, then trading around the corners. If I have a strong conviction of the direction which I don’t, I would jump in a bit more.</p>
<p>Lost the raffle. </p>
<p>Doct, I am not criticizing your trades. I probably should be doing them. </p>
<p>I trade buy/writes. </p>
<p>If I dont think the stock is going to move much, I will do a buy/write.</p>
<p>@dstark:
</p>
<p>Not really “safer” – there are 2 ways that I buy stock:</p>
<ol>
<li>As a buy-write, where I buy the covered call at the time of buying the stock, or</li>
<li> Simply buy the stock outright, but immediately put a stop-limit or trailing stop. Typically I will look at the stock’s recent history and see if I can ascertain a specific level of support, and I’ll set the stop initially at that level (assuming that is within my loss-tolerance level).<br></li>
</ol>
<p>The choice I make depends on a number of factors, including overall volatility of the stock, as well as the state of the market overall. For example, I had not done any buy-writes earlier this year, but after a rocky July, I’m a little more pessimistic about prospects of stocks going up, so I’ve started that again. </p>
<p>With buying the stock outright, I have unlimited upside potential, but my downside risk is limited by my stop loss point. However, that means that in a volatile market there is a fairly good likelihood that I will end up being stopped out before the stock becomes profitable.</p>
<p>With a covered call I’m simply hedging my bets. There is a higher potential of a small return, but I’ve sold away my potential for large returns, and I’ve left myself potentially exposed in case the stock takes a precipitous dive. In that case I’d have to buy back the call in order to close out the stock position, and it’s somewhat harder for me to use pre-set, automated exit points (such as conditional sales orders)</p>
<p>
</p>
<p>I think you are talking about a more aggressive, but less common approach – such as buying 2000 shares of XYZ at $50 and selling a deep-in-the-money call in order to substantially reduce the investment needed. That is, rather than selling an at-the-money call at say, $2, you might be going for a farther out, in the money call – for example, with a strike of 30 that you are able to sell for $30, so your net cost to enter is $20 per share. But if you do that with a dividend paying stock then you’ve got a very high chance of being called away early – and I really don’t see the advantage of doing that as opposed to simply setting up a diagonal spread. I guess if you’ve done things that way, there is some value --but I don’t think is a common use of the strategy. I think most people begin by writing near-the-money calls. </p>
<p>Well there is a bear guy that turned bullish last week, he predicted SP 2300. How about that?
<a href=“Market bear becomes biggest bull on Wall Street”>http://finance.yahoo.com/news/market-bear-becomes-biggest-bull-175513037.html</a></p>
<p>You dont have to hold a covered call position to expiration. If the stock drops to a certain level you can close it out or buy puts or roll or whatever…Are your stops automatically executed? </p>
<p>The covered call trade does not have to include deep in the money calls .</p>
<p>I have traded many dividend plays in the past. I count on a certain number of traders not exercising their deep calls. If the dividend is more than the cost of the puts plus transaction and carrying costs… I can make money. </p>
<p>Why wouldnt I buy a stock for 50 and sell the 30 calls for 30? That is a pretty good return on my money. That is a 50 percent return. Obviously time to expiration and volatility matter.</p>
<p>I know that was an example. Is anything like that example occuring in real life . I am interested in this…</p>
<p>There are many strategies. That makes options trading interesting.</p>
<p>@DocT
</p>
<p>I think those are beginner’s mistakes – I made them myself, but I learned.</p>
<p>The point is that you only sell the call in a stock that you are willing to let go. If the stock shoots up in value – you don’t roll up you, just let it go. Yes, it is emotionally hard to think about what you could have made if you hadn’t sold the call – but then the market is full of stocks that you don’t own and didn’t buy when you had the chance. Covered- calls are a mostly bird-in-hand strategy.</p>
<p>On the down side, that is a definite risk and that’s why I look at historical support levels of stocks, and when I have calls I will often close them out ahead of an earnings announcement to avoid the potential of being hurt by a big change. </p>
<p>If you are going to roll up on a regular basis, then it’s almost always a losing strategy. A better choice if you are holding a call that is suddenly deep in the money might be to buy a same-day expiration at-the-money call, so if the stock continues to rise, you are protected by the increased value of your long call. But there are a number of complicated tax issues that can arise when you start doing that. </p>
<p>But I think just letting go and moving on might be a better strategy. Stocks can be bought and sold any time. </p>
<p>@dstark – I know I can close out a call to get out of a position --and I’ve done that --but there is a higher cost to doing that in terms of commissions, and it’s just harder to automate. And yes, my stop loss orders are set to automatically execute. I shied away from doing that for awhile because of the flash-crashes, but I’ve come around to believe that a flash-crash is a far less likelyoccurence than the ordinary losses that might occur because of a sudden an unexpected drop in a stock price – which actually is a fairly common occurrence. </p>
<p>
</p>
<p>I’m just saying that Idon’t see the advantage of doing that vs. setting up a spread where the cost of the long call to anchor the transaction is even less. Either wayyou can expect your short call to be assigned unless you close it out ahead of time. You might get lucky and pick up a dividend, but I think the odds are that the stock will be assigned – and my brokers a higher fee for an assignment-- so it doesn’t make a lot of sense for me to set up trades with a high likelihood of assignment. </p>
<p>“I think those are beginner’s mistakes – I made them myself, but I learned.” Perhaps as this was a long time ago. The bottom line from my standpoint is I see no reason to own stock as opposed to options unless the dividend is quite high - particularly in tax advantage accounts. I don’t have to market time and I lose 0 if the market drops 10% at which time I have lots of dry powder.</p>
<p>Your example uses calls with a $10 premium. If those calls are called away…you pocketed that premium. </p>
<p>So if I buy stock and sell calls with a $10 premium, and the calls are assigned, I make that $10 plus any dividends I did collect. </p>
<p>Maybe you would like to use a different example? </p>
<p>You can buy a call spread instead of a covered call…</p>
<p>If your short side is going to be assigned because of a dividend, you should exercise your long side. So if I am long the 30-50 call spread and I know the 50 calls are going to be assigned, I should exercise my calls. Otherwise, I am going to pay the dividend. </p>
<p>Doct mentioned a 178-179 call spread.
Let’s look at it. Let’s say I pay .65 for that spread. Let’s say the dividend is .50 a quarter. The spread is trading 1.00. Both sides are way in the money. </p>
<p>I dont exercise my side. The short calls assigned. Now I have to pay the dividend.
So what is my profit or loss?</p>
<p>1.00-.65=.35 profit - dividend paid of .50 = .15 loss. </p>
<p>I turned a .35 profit into a .15 loss.</p>
<p>" I don’t have to market time and I lose 0 if the market drops 10% at which time I have lots of dry powder"</p>
<p>I like this…</p>
<p>“I turned a .35 profit into a .15 loss.” I’m not certain who this is directed to but it is an example that I threw together on the spur of the moment. Typically when I do this type of trade, it is with stocks that do not have a dividend - fb, twtr etc. </p>
<p>Even without the 10% drop, I use some of the money that didn’t go into buying stocks. I have combination call and put spreads that get me to market weighted, then I do a bunch of different types of trades: selling puts, buying atm put spreads that I pay for by selling otm put spreads that can be rolled out if necessary. I make certain with this other cr** that I am diversified not only in the type of stock but more importantly the method. I don’t have a lot in any one way of using options.</p>
<p>Doct, Hey! I understand! I really should be doing what you are doing. </p>
<p>How long are you going out before expiration? Are you net short puts? </p>
<p>I thought you were trading indexes. Spy has dividends. We know you missed a few. :)</p>
<p>So,you have been doing this for awhile. Are your returns matching the market on the upside.</p>
<p>We dont actually crash too often. How much is your portfolio down if the market drops 25 percent?</p>
<p>I do trade indexes that tend to be long term at least this year - out to 1/17/15. By mistake I bought some googl call spreads that I thought were for 1/17/15 but instead were 2016. I’m planning on reducing my work to 3 days a week. I therefore have tried to move my profits as much as possible to next year when my income is less. I’ve only been partially successful at this since I did have a lot of shorter term trades. As bizarre as this sounds, the accounts that I trade the most, I’m up the most > 15% because 1. I have bought some more during some dips - in April 2. I owned some aapl. 3. selling puts and some other odd stuff. </p>
<p>I know that with the index trades I’m covered down 10% ( maybe 15% loss if the market drops 25%) but on the way down I would be buying put spread combos that are costing me nothing - with these I hit singles and offset some of the losses. I don’t want to have to think a lot but rather have very mechanical trades.</p>
<p>I have 2 big issues that I’m trying to resolve: 1. Huge short term capital gains (got any ideas - maybe trading futures?) and I have too many accounts and have difficulty keeping track of everything.</p>
<p>Well…having too many short term cap gains is a nice problem to have. :)</p>
<p>Taxes never bother me. </p>
<p>500 spy = 1es future. 813 qqq = 1 nq future. 1000 iwm = 1 tf future. </p>
<p>The rest you are on your own. :)</p>
<p>I don’t doubt that it’s possible to do a lot better with options than stocks – I just found it to be more time intensive to keep track of it all. I could see doing thing that way after I retire and don’t have a day job to worry about. I don’t really plan to retire for another 10 years, though. I mean,… I’ll continue to dabble a little because it’s fun, but I just don’t have the time to be doing it on a regular basis. </p>
<p>I am talking about the s&p 500 mini future…the nasdaq 100 mini future…The russell 2000 (mini) future…</p>
<p>Just for clarity…</p>
<p>
Yep, all of my stocks were called in one trading account. I like it that way, I never know when to sell. But with that strategy, I’m up >30% and I thought this is not good return for all my effort. But this is my first year, well less than the first year so I’ll wait and see.</p>