Conservative option strategies, what did you buy or sell today?

[NilesMike]

I aslo do not hold until expiration. I take them when there's only 25-30% of the premium left. Really ups your winning percentage by leaving a little on the table before gamma (price) become overly influential.

[fenders53]

Nor do I hold until expiration when it makes sense. I'm not trying to make this overly complicated for others though. Once they sell a put or call they can watch the price and decide when the risk reward no longer makes sense. Most of my put sells are truly an attempt to buy the stock cheap so I don't overly stress it. That said, if I sell a put in MMM for $400 and a week or so later it is only worth $100 because the stock ran $10, then yes I might ring the cash register and the chance of me being assigned is now very low anyway. I have done that several times with MMM alone. No sense holding it another 4-5 weeks if a better opportunity is out there. In honestly if I buy back a option, I am usually paying $10 or less with commission included to clsoe it out, and only a week or two left until expiration. Letting them expire worthless is great, but if I need the capital for new put sales I close a few. My primary goal remains to build a DGI port, not become an options trader exclusively. I am mostly trading the same options over and over in companies I have researched to death. I am not going to wake up sad when the market turns on me, and someday it will, and forces a bunch of shaky stock buys on me.

[ChadR]

Thankfully it was only for 100 shares of GE. Yeah, if I did get stuck with it, I would have immediately started selling calls on it for income. I knew it was a gamble when I sold the put, but it was a small gamble that I was willing to take.

[fenders53]

(02-19-2019, 11:54 AM)ChadR Wrote: Thankfully it was only for 100 shares of GE.  Yeah, if I did get stuck with it, I would have immediately started selling calls on it for income.  I knew it was a gamble when I sold the put, but it was a small gamble that I was willing to take.

I do that with a stock or two per month.  It's admittedly fun.  It is easy to let greed get you when premiums on shaky stocks are often the best.  The premiums are high for a reason and I always keep the speculative stuff to a very small % of my port.  I see no harm it it, but it is a slippery slope.  many people get lucky doing it when the bull is running, then they mistakenly think they have it completely figured out and double down with margin. 

[ChadR]

I know I don't have it figured out on my gambling option plays. This was a one time quick hit that I knew had a small percent chance of burning me. And it was a very small percentage of my portfolio so if I was burned, it was minimal.

No way this is a common occurrence. Nearly all of my options are for stocks that I want to buy. Though if I see a stock that I believe is extremely overvalued, I will buy a put. Rarely do this as I don't like to spend money and as you say, 90% of the options expire worthless.

[fenders53]

(02-19-2019, 12:38 PM)ChadR Wrote: I know I don't have it figured out on my gambling option plays.  This was a one time quick hit that I knew had a small percent chance of burning me.  And it was a very small percentage of my portfolio so if I was burned, it was minimal.

No way this is a common occurrence.  Nearly all of my options are for stocks that I want to buy.  Though if I see a stock that I believe is extremely overvalued, I will buy a put.  Rarely do this as I don't like to spend money and as you say, 90% of the options expire worthless.

I have no problem with somebody buying an option, but you are gambling and those odds are against you.  It depends how you spin it, but I think about 70% of options expire completely worthless.  You could however make money trading that option that will eventually expire worthless.  If you are buying it's a casino pure and simple.  They have done the math.  Now you can buy a put as a hedge against a long position.  I don't do it, but you are in effect buying insurance.  I prefer the be the insurance agent in this scenario.  That is truly how I view this.  You are afraid your HD is going to drop in value?  I'll take your $300 insurance premium for a month and I'll buy 100 shares of HD for $5 under todays price if you are right, because I have no problem owning the stock long-term.  I suppose we can both win in this scenario, but your average Joe is not winning buying calls.  He'll lose in the end because the odds will make that happen.  Play until you lose big, and you will eventually when the market makes a violent move you didn't predict..

All that said, if I was going to buy calls it would be on a bad news over-reaction.  I repeatedly win that bet from a more conservative angle.  That SIX put I sold for $340 late last week can be bought back two trading days later for $225.  That's a pretty sweet profit if I had sold 10 puts, but that would be gambling with my port balance.  I'll leave the position alone for now because I am OK with the owning it long and taking the big Div, given the currently known situation with SIX.

[NilesMike]

There is no inherent advantage to selling premium as opposed to buying premium. They are simply the inverse of each other. Selling equals many smaller wins and then a large loss (that's why we here do them on stocks we would like to hold). Buying premium equals many small losers (the premium you paid) and then some big winners.

The "secret" sauce is in the application of options and risk management.

[fenders53]

Agreed, when you add the eventual intention of going long it turns our bad day "loss" into the end goal. Albeit we end up buying some stocks at a premium to current market price, but we picked the price in the first place. It comes down to proper selection of the option. Rookies tend to purchase way out of the money calls because they are very cheap and they can hit that home run if it works out. That is where the 70-90% loss rate stats come from. They are true, because that is what many people actually buy until they figure it out. The smart money does not unless they are playing algos and trading it ten minutes later. I'm sure there is plenty of that going on as automated as things are.

[fenders53]

The market is not right to sell a put on anything on my watch list today. I am off work so that is disappointing. So I present to you boring option trade of the day.

Sold a MET APR 47.50 covered call for .55. That's only about 7% annualized on the premium. It's unlikely to be exercised.

This is one of my favorite predictable stocks stuck in a trading range. $47.50 is well above the recent trading range. Took me about 6 attempts to buy it via put sale as I sold on the dips. Finally got exercised in DEC for an average cost of $41.25 (not including the $600 total premiums received along the way). I've sold calls since then that just expired worthless. I'm good with selling part of my position for $47.50 if it happens. MET pays a 4% Div so my intent is to keep some shares longterm, and try to not be called out often at dividend date. MET trades much like a Ute and it has been good to me. It's among the easier ones to manage.

[NilesMike]

(02-19-2019, 01:58 PM)fenders53 Wrote: The market is not right to sell a put on anything on my watch list today. I am off work so that is disappointing. So I present to you boring option trade of the day.

Sold a MET APR 47.50 covered call for .55. That's only about 7% annualized on the premium. It's unlikely to be exercised.

This is one of my favorite predictable stocks stuck in a trading range. $47.50 is well above the recent trading range. Took me about 6 attempts to buy it via put sale as I sold on the dips. Finally got exercised in DEC for an average cost of $41.25 (not including the $600 total premiums received along the way). I've sold calls since then that just expired worthless. I'm good with selling part of my position for $47.50 if it happens. MET pays a 4% Div so my intent is to keep some shares longterm, and try to not be called out often at dividend date. MET trades much like a Ute and it has been good to me. It's among the easier ones to manage.

Too funny, I was trading MET last week. I'm in around 43.50 avg.

[fenders53]

(02-19-2019, 02:07 PM)NilesMike Wrote:

(02-19-2019, 01:58 PM)fenders53 Wrote: The market is not right to sell a put on anything on my watch list today.  I am off work so that is disappointing.  So I present to you boring option trade of the day.

Sold a MET APR 47.50 covered call for .55.  That's only about 7% annualized on the premium.  It's unlikely to be exercised.

This is one of my favorite predictable stocks stuck in a trading range.  $47.50 is well above the recent trading range.  Took me about 6 attempts to buy it via put sale as I sold on the dips.  Finally got exercised in DEC for an average cost of $41.25 (not including the $600 total premiums received along the way).  I've sold calls since then that just expired worthless.  I'm good with selling part of my position for $47.50 if it happens.  MET pays a 4% Div so my intent is to keep some shares longterm, and try to not be called out often at dividend date.   MET trades much like a Ute and it has been good to me.  It's among the easier ones to  manage.

Too funny, I was trading MET last week. I'm in around 43.50 avg.

I've been hyping it here for awhile.  I try to spend half my option time with companies I know.  MET is a keeper.  So is PRU but I have only made money selling puts and never been exercised.  They are about the safest financials IMO and they get no respect.  Little voice tells me to keep 100 shares forever and collect the big Div, and keep stealing money by selling puts and calls with another 100 shares.  I have no intention of stopping.  The funny thing is my GOV 401K was scheduled to be transferred to a MET annuity.  I checked it out and said oh hell no I don't like your deal!   But I'm not typical.  Most fall in line and transfer their GOV funds to MET upon retirement.  MET is solid because most are financially ignorant.

[fenders53]

(02-19-2019, 09:04 AM)fenders53 Wrote: CVS- On JAN 29 I sold a FEB 22 Strike 64 put for $1.42 after commission.  CVS traded around 65.50 at the time.  About 69 today and this one likely expires worthless on Friday.  If I needed the cash for a better trade or stock purchase I'd close this one out now.  2.2% return for 21 day hold.  I'd like to hold some CVS shares so barring a pullback this one got away for now.  But I won't go broke taking income like this.  Low risk option IMO.

Pardon me while I adjust yesterday's risk profile from low to moderate.     
That forward guidance was pretty rough.  Looks like I will likely be in CVS in the low 60's.  I'm OK with that as I like the Aetna merger plan and sub 11 PE.  But if I had a crystal ball I'd rather write the put contract now instead of several weeks ago.  It should be noted if this was purely an income put should have been bought back yesterday for as low as 13 cents.  The position was profitable within a few days of selling it.  Buying a stock just before earnings comes with some short-term risk.  The only thing I gained here is not paying $65.50 two weeks ago, because I highly doubt if CVS will be that high in a few days.