Investing General Discussion

Rangoth · Feb 9, 2021

Sanrith Descartes said:
Wrote the $15 strike BTWN puts expiring in March. $1.85 premium Fogel

Curious about this. When you write a put, just to make sure I understand, you are receiving 1.85$ premium, correct? So what is your actual goal with this type of maneuver?

Do you actually want to own the stock at $15?
Are you hoping it will expire above $15 and thus you just bank the premium?
Are you hoping for the value to change and you could close it something like .30$ and take the profit?

I only ask because I am still a bit confused on how the value of a put will change over time. Technically if the stock keeps rising(thus reducing the chance it will reach 15$) the put *loses* value, correct? In that case it is a complete waste of time to close it out unless you want the liquid back and you can close it out cheap. I understand it's still a profit if you sell it at 1.85$ and buy it back at 0.30$, but if it will expire worthless why sell it back at all if you don't need the funds on hold?(also assuming there is not enough time that it could bomb back down to 15$).

Downhammer · Feb 9, 2021

Sanrith Descartes said:
First world problems:
I usually set up my Active Trader Pro with my Main portfolio across the top half of the screen and on the bottom left I have one watchlist and on the bottom right I have another watchlist. My current portfolio has so many positions right now it is taking up 95% of the screen and I can't see my watch lists.

My problem's not near as cool. My FoH watchlist has grown biggly the last couple weeks and it's encroached on my tiny portfolio window.

Fogel · Feb 9, 2021

Rangoth said:
Curious about this. When you write a put, just to make sure I understand, you are receiving 1.85$ premium, correct? So what is your actual goal with this type of maneuver?

Do you actually want to own the stock at $15?

Are you hoping it will expire above $15 and thus you just bank the premium?

Are you hoping for the value to change and you could close it something like .30$ and take the profit?

I only ask because I am still a bit confused on how the value of a put will change over time. Technically if the stock keeps rising(thus reducing the chance it will reach 15$) the put *loses* value, correct? In that case it is a complete waste of time to close it out unless you want the liquid back and you can close it out cheap. I understand it's still a profit if you sell it at 1.85$ and buy it back at 0.30$, but if it will expire worthless why sell it back at all if you don't need the funds on hold?(also assuming there is not enough time that it could bomb back down to 15$).

Yes, when you write (sell to open) a put, you're the one receiving the premium. The goal of the maneuver is to collect the premium and close out the put as soon as possible to reinvest the money.

When most of us sell puts, we don't actually want the stock, we want the premium. If I'm bullish enough on a stuck I'll just buy it instead of writing a put on it. You are correct that as the stock goes up in value the put loses value. There are two reasons you want to buy out a put early.

1. To avoid a black swan event where the stock tanks on Friday and now you're actually left holding the stock at the lesser value. Just ask Sanrinth about this one!

2. The sooner you can buy out the put, the sooner you can put the money back to work making more money. Don't forget the time and opportunity cost of money. I'd rather make that 1.85 premium in two days than one week, it equals a greater % return on your investment since selling puts locks up the cash in case you do get assigned and have to buy the shares.

LachiusTZ · Feb 9, 2021

Tmac said:
You've made $80k on Doge? Holy shit! Hahahahaha.

I made $200 by getting in @ $0.03.

HCMC, that penny stock the Russian is trying to pump

Rangoth · Feb 9, 2021

Thanks, that part makes sense. So basically like anything you want the cash back asap to put it to future use. Using the silly example above holding to expire to keep that extra .30 is not as good as repeating the process. Got it

I've been using puts on stocks I actually want(opps). If it was clearly not going to be hit I just let it expire as I pretty much saw it as 2.5-3.5% interest on my cash for a period of 1-4weeks(my typical put). This didn't seem all that terrible to me as that's pretty valuable over the course of a year...but I guess clearly not as valuable as hundreds/thousands of 7-15% trades!

Sanrith Descartes · Feb 9, 2021

Rangoth said:
Curious about this. When you write a put, just to make sure I understand, you are receiving 1.85$ premium, correct? So what is your actual goal with this type of maneuver?

Do you actually want to own the stock at $15?

Are you hoping it will expire above $15 and thus you just bank the premium?

Are you hoping for the value to change and you could close it something like .30$ and take the profit?

I only ask because I am still a bit confused on how the value of a put will change over time. Technically if the stock keeps rising(thus reducing the chance it will reach 15$) the put *loses* value, correct? In that case it is a complete waste of time to close it out unless you want the liquid back and you can close it out cheap. I understand it's still a profit if you sell it at 1.85$ and buy it back at 0.30$, but if it will expire worthless why sell it back at all if you don't need the funds on hold?(also assuming there is not enough time that it could bomb back down to 15$).

I in every case take the sell side of an options trade (thanks

Blazin ). I get the premium no matter what happens so in this case I got paid upfront $185 dollars for each control I wrote from the buyer. I only write puts on stocks I am willing to own. I do a lot of research into price points. My goal is for the stock to either go higher or a little lower while finishing above the strike. In that case I keep the money as pure profit.

If the price goes too low and I get assigned, I have already made the premium so in essence I get the stock at a discount (in this case $15 - 1.85 = 13.15) so if this stock ends below 15 but above 13.15 I still made a profit.

In almost every case I will try to buy a contract to close out my position around 3-5 cents or so. Every minute the clock is running there is always the chance of a black swan event fucking me. I am willing to pay 5 cents a share ($5 a contract) to eliminate that black swan risk.

As to the value changing, options have two values time and instrinsic. As long as the stock is above the strike on a put it has zero intrinsic value only time value. Time decay increases the closer to expiry you are, the the cost to close out an option gets cheaper as it approaches expiry.

Sanrith Descartes · Feb 9, 2021

Fogel said:
1. To avoid a black swan event where the stock tanks on Friday and now you're actually left holding the stock at the lesser value. Just ask Sanrinth about this one!

Black swan events are so rare they never happen... until they happen. That 5 cents you saved doesnt seem to important when they do. Something about pigs and hogs.

Fogel · Feb 9, 2021

Rangoth said:
Thanks, that part makes sense. So basically like anything you want the cash back asap to put it to future use. Using the silly example above holding to expire to keep that extra .30 is not as good as repeating the process. Got it

I've been using puts on stocks I actually want(opps). If it was clearly not going to be hit I just let it expire as I pretty much saw it as 2.5-3.5% interest on my cash for a period of 1-4weeks(my typical put). This didn't seem all that terrible to me as that's pretty valuable over the course of a year...but I guess clearly not as valuable as hundreds/thousands of 7-15% trades!

Well this is the part where you decide how much risk and profit you want. The more options you write and the closer to the strike you write for more premium, the higher your gains but also the chance you're assigned a stock that drops in price. Also, if you want to write more options you have to spend more time watching the market, where as if you only write one option a week/month, that's less you have to monitor things. So it comes down to your risk level, how much profit you want, and how much of your time you're willing to invest. Over time you'll develop a style that works for you. I like to be very aggressive with my strikes, trying to stay within 3% of the current price.

When I first started I was happy with .25-.50% return a week, but I've since increased that to 1% per week based on how I've been performing versus the market. This would obviously have to change if we hit a bear market as well.

Fogel · Feb 9, 2021

Rangoth said:
I've been using puts on stocks I actually want(opps).

This is still a viable strategy. I do say never write a put on a stock you wouldn't mind owning. Maybe you think it has a flat/bearish short term with a bullish long term, puts are still a great way to end up owning a stock. I would just recommend being more aggressive with the strike you'd take if you do at one point want the stock. You get more premium and have a higher change of being assigned.

Sanrith Descartes · Feb 9, 2021

Rangoth said:
Curious about this. When you write a put, just to make sure I understand, you are receiving 1.85$ premium, correct? So what is your actual goal with this type of maneuver?

Do you actually want to own the stock at $15?

Are you hoping it will expire above $15 and thus you just bank the premium?

Are you hoping for the value to change and you could close it something like .30$ and take the profit?

I only ask because I am still a bit confused on how the value of a put will change over time. Technically if the stock keeps rising(thus reducing the chance it will reach 15$) the put *loses* value, correct? In that case it is a complete waste of time to close it out unless you want the liquid back and you can close it out cheap. I understand it's still a profit if you sell it at 1.85$ and buy it back at 0.30$, but if it will expire worthless why sell it back at all if you don't need the funds on hold?(also assuming there is not enough time that it could bomb back down to 15$).

Here is a chart example. I was holding a lot of puts expiring on 12/18. I was greedy 2 days early with the stock trading at $15 and my puts having a strike of $10 and choose not to pay the nickle to close. The next day (the day before expiry), news broke that the companies biggest customer was filing bankrupcty. The stock lost half its value in an instant. Black swan. That was an expensive nickle. The yellow mark is expiry (Friday). The green high was the close on Weds around $15. The red arrow is the elevator to the basement the next morning. It was crushed pre-market but options dont trade pre-market so I got to spend hours watching the pain I was about to feel and not able to do anything. Moral of the story...
Pay the nickle.

Sanrith Descartes · Feb 9, 2021

Rangoth said:
Thanks, that part makes sense. So basically like anything you want the cash back asap to put it to future use. Using the silly example above holding to expire to keep that extra .30 is not as good as repeating the process. Got it

I've been using puts on stocks I actually want(opps). If it was clearly not going to be hit I just let it expire as I pretty much saw it as 2.5-3.5% interest on my cash for a period of 1-4weeks(my typical put). This didn't seem all that terrible to me as that's pretty valuable over the course of a year...but I guess clearly not as valuable as hundreds/thousands of 7-15% trades!

I write on stocks I want to own all the time. Mainly when its trading above a support level and I am pretty sure it will hit that support level and I dont want to over pay if it doesnt. Free money if it doesnt assign.

Tmac · Feb 9, 2021

Fogel said:
Yes, when you write (sell to open) a put, you're the one receiving the premium. The goal of the maneuver is to collect the premium and close out the put as soon as possible to reinvest the money.

When most of us sell puts, we don't actually want the stock, we want the premium. If I'm bullish enough on a stuck I'll just buy it instead of writing a put on it. You are correct that as the stock goes up in value the put loses value. There are two reasons you want to buy out a put early.

1. To avoid a black swan event where the stock tanks on Friday and now you're actually left holding the stock at the lesser value. Just ask Sanrinth about this one!

2. The sooner you can buy out the put, the sooner you can put the money back to work making more money. Don't forget the time and opportunity cost of money. I'd rather make that 1.85 premium in two days than one week, it equals a greater % return on your investment since selling puts locks up the cash in case you do get assigned and have to buy the shares.

I don't get it.

How is a put different from a short?

Rangoth · Feb 9, 2021

Exactly. For example I thought it would be a good idea to own JCI(pays a dividend, mostly stable, etc). as part of my long term goal. Overall I am up over 100%, but this is after about a year and of course I am still holding the stock.

So for me a somewhat aggressive(either at strike or close to it) put was a way to try and get more of that stock and if the prices rises no big deal, I got paid to try. Typically the premium was around 2.5-3.5% of the strike. With a 2 week put and doing this at a rotating level I was basically growing my account by a measly 2.5-3.5% every two weeks. Not the kind of gains you guys brag about, but over the course of a year it works out to basically doubling my money(i think) year over year for(in my opinion) fairly low risk. Same concept with a covered call.

Example of what I did the last two weeks, 1500$ cash, sold a put for almost all of it(1478 or something) for 38$ expiring at the end of the week, this is about 2.2%. So to you big boys this 38$ is a joke, but it also took me 10 minutes and is fairly low risk. 38x52(weeks a year) and I made 1,999$. Or almost double my original 2k. Obviously getting that 2.2% every time isn't a guarantee(sometimes its 1.x%) and at some point I may actually have to buy the stock but then I reverse the process with a covered call.

Anyway that is what I was doing and it wasn't terrible but unless you feed the machine it doesn't really grow at any huge rate.

I know you guys will turn that 2k into 2.5k in a day and then do it again tomorrow. Wish I could do that and I am actually starting to get interested in advancing my skills around here to do just that...with more realistic goals, like turning that 2k into 2.1k regularly

Fogel · Feb 9, 2021

Rangoth said:
Exactly. For example I thought it would be a good idea to own JCI(pays a dividend, mostly stable, etc). as part of my long term goal. Overall I am up over 100%, but this is after about a year and of course I am still holding the stock.

So for me a somewhat aggressive(either at strike or close to it) put was a way to try and get more of that stock and if the prices rises no big deal, I got paid to try. Typically the premium was around 2.5-3.5% of the strike. With a 2 week put and doing this at a rotating level I was basically growing my account by a measly 2.5-3.5% every two weeks. Not the kind of gains you guys brag about, but over the course of a year it works out to basically doubling my money(i think) year over year for(in my opinion) fairly low risk. Same concept with a covered call.

Example of what I did the last two weeks, 1500$ cash, sold a put for almost all of it(1478 or something) for 38$ expiring at the end of the week, this is about 2.2%. So to you big boys this 38$ is a joke, but it also took me 10 minutes and is fairly low risk. 38x52(weeks a year) and I made 1,999$. Or almost double my original 2k. Obviously getting that 2.2% every time isn't a guarantee(sometimes its 1.x%) and at some point I may actually have to buy the stock but then I reverse the process with a covered call.

Anyway that is what I was doing and it wasn't terrible but unless you feed the machine it doesn't really grow at any huge rate.

I know you guys will turn that 2k into 2.5k in a day and then do it again tomorrow. Wish I could do that and I am actually starting to get interested in advancing my skills around here to do just that...with more realistic goals, like turning that 2k into 2.1k regularly

You're pretty much on the right path. You'll be able to do what you're doing even in a bear market while the people who brag about their massive gains will probably have losses instead.

Downhammer · Feb 9, 2021

Seems like the most obvious difference is if you "lose" a put you still own some stock that should have at least some value. Losing a short and all you'll own are IOUs and wsb memes.

Rangoth · Feb 9, 2021

Tmac said:
I don't get it.

How is a put different from a short?

When you sell a put you are agreeing to *buy* the stock at X price. If it stays above that price you do not have to buy it, if it goes below you do(unless you close the option, blah blah). So in a way you are betting the stock will go down, but your maximum theoretical loss would be the strike price. Meaning if you sell a put for 10$ the maximum you could ever lose would be 10(x100 as it's an option) because the stock can never go below zero.

When people say "short" they typically mean they are buying the right(option) to *sell* a stock at a particular price. In practice this basically means that I would borrow 100 shares from you and sell them immediately at the 10$. I then hope the stock drops in price so I can buy them back at a later date for 5$. I just made 5$ per share. However if the stock does not drop, if it goes up I may have to buy them back at whatever the new price is. This is more risky because the stock could go to 40$, which would make my loses 30$ per share(40$ - original price of 10$).

Edit: I've never shorted because I don't consider myself knowledgeable enough about market and movements....so fuck that level of risk. But hey people make millions and billions on it so it's definitely a viable strategy.

Fogel · Feb 9, 2021

Tmac said:
I don't get it.

How is a put different from a short?

You'd be short if you were buying a put. You would be paying someone the right to sell them the shares at a lower share price. We're selling puts which is being on the opposite end of that.

Sanrith Descartes · Feb 9, 2021

"Technically" you are short the options contracts because you sold them. They show up with a negative quantity. Writing puts is a bullish posture. Buying puts is a bearish posture and your are buying insurance as you expect the price to go down.

This is not the same as being short stock. In that case you borrowed stock and sold it with the expectation (bearish) that the stock will go down and you will be able to buy it at a lower price to replace the borrow and pocket the difference as profit.

Fogel · Feb 9, 2021

Rangoth said:
Edit: I've never shorted because I don't consider myself knowledgeable enough about market and movements....so fuck that level of risk. But hey people make millions and billions on it so it's definitely a viable strategy.

Shorting does have its place, like buying puts. But short sellers haven't done the math. If you're shorting a 100$ stock, your potential profit is only ever going to be 100$ a share, but if that stock goes up to 500$ you're now down 400$ a share on a 100$ share stock. I swear short sellers are just doing it for the adrenaline.

Rangoth · Feb 9, 2021

Sanrith Descartes said:
"Technically" you are short the options contracts because you sold them. They show up with a negative quantity. Writing puts is a bullish posture. Buying puts is a bearish posture and your are buying insurance as you expect the price to go down.

This is not the same as being short stock. In that case you borrowed stock and sold it with the expectation (bearish) that the stock will go down and you will be able to buy it at a lower price to replace the borrow and pocket the difference as profit.

Ahh, good to know. Important distinction!

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