First of all, NilesMike please help me with this, but r Refrain from taking it to fancy option levels. Let's skip the complicated "Greek" math for now as it isn't helpful for noobs. I have been asked to start again from the basics. We are just explaining things here, not trying to amaze as that will just discourage the folks we are trying to help. Feel free to post up a simple one contract trade to help explain this.
We gotta start somewhere and I just executed a T put sale just now as Stockguru asked about. For some context I own 260 shares long. I would be comfortable owning 500 shares and less comfortable owning 1000. I have options expiring most every week. I prefer to spread the expirations out as it is just easier to manage. You could sell 10 contracts but we are selling one for simplicity of explanation. I believe the likely bottom for T is 26 in a rough market. I believe the dividend is secure. It goes Ex-DIv in a few days which is ALWAYS a consideration when buying or selling option. T RSI continues to be oversold. Overall this is a decent risk/reward trade. I would prefer to execute it post dividend but this is just an example.
Sold a T put strike 28 expiring OCT 23rd. It is out of the money so the $57 premium is all extrinsic value. Does everyone know what that means? Don't be afraid to ask for explanation of any term used here.
Mostly I did this trade for illustration as the market is up today, but the date fits into my plan well enough. I have T options expiring most every week. I don't stack up 5 or 10 on one date. Just a personal preference, not right or wrong.
If T is over $28 and we hold it to expiration this options expires worthless and we do it again. If T dips below $28 as expiration nears we aren't stuck but we have to make a decision. Spoiler alert... if T runs up $2 in a week we may buy it back very cheap and move on to the next opportunity. If it goes into free fall we'll manage the option for better or worse. When things go bad you can save yourself half the time, but this isn't risk free. You have to be comfortable with the worst case scenario. I may be forced to buy 100 T shares at $28, but I won't do that if I can roll it down to a somewhat better entry. Option premiums almost always far exceed dividend returns. If you do this with many stocks you WILL be managing a few trades every month that didn't go your way. It's a pain some months but worth it because the income FAR exceeds dividends most months. It's the only reason I bother with this strategy.
Speculative option sells are more lucrative. We'll do that when the time is right
We gotta start somewhere and I just executed a T put sale just now as Stockguru asked about. For some context I own 260 shares long. I would be comfortable owning 500 shares and less comfortable owning 1000. I have options expiring most every week. I prefer to spread the expirations out as it is just easier to manage. You could sell 10 contracts but we are selling one for simplicity of explanation. I believe the likely bottom for T is 26 in a rough market. I believe the dividend is secure. It goes Ex-DIv in a few days which is ALWAYS a consideration when buying or selling option. T RSI continues to be oversold. Overall this is a decent risk/reward trade. I would prefer to execute it post dividend but this is just an example.
Sold a T put strike 28 expiring OCT 23rd. It is out of the money so the $57 premium is all extrinsic value. Does everyone know what that means? Don't be afraid to ask for explanation of any term used here.
Mostly I did this trade for illustration as the market is up today, but the date fits into my plan well enough. I have T options expiring most every week. I don't stack up 5 or 10 on one date. Just a personal preference, not right or wrong.
If T is over $28 and we hold it to expiration this options expires worthless and we do it again. If T dips below $28 as expiration nears we aren't stuck but we have to make a decision. Spoiler alert... if T runs up $2 in a week we may buy it back very cheap and move on to the next opportunity. If it goes into free fall we'll manage the option for better or worse. When things go bad you can save yourself half the time, but this isn't risk free. You have to be comfortable with the worst case scenario. I may be forced to buy 100 T shares at $28, but I won't do that if I can roll it down to a somewhat better entry. Option premiums almost always far exceed dividend returns. If you do this with many stocks you WILL be managing a few trades every month that didn't go your way. It's a pain some months but worth it because the income FAR exceeds dividends most months. It's the only reason I bother with this strategy.
Speculative option sells are more lucrative. We'll do that when the time is right