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

[john]

I guess for better or worse I have started to Look at each "trade" as a "deal" rather then an "investment"
The above potential monthly returns are what prompted me to do it.
Would there have been other, better ways to trade this? Sure, possibly
I am here to serve as an example time will tell if its good or bad.
I enjoy the friendly back and forth

[NilesMike]

(01-04-2021, 02:24 PM)john Wrote: I guess for better or worse I have started to Look at each "trade" as a "deal" rather then an "investment"
The above potential monthly returns are what prompted me to do it.
Would there have been other, better ways to trade this? Sure, possibly
I am here to serve as an example time will tell if its good or bad.
I enjoy the friendly back and forth

That play may or may not work out, we never know but you could probably have enhanced your odds a bit.
I do the dance with T but sometimes the premiums are quite low and I move on untl they fatten up a bit.

I also trade KO a lot and if you are product agnostic, I will suggest a different type of options trade using KO as an example.

5FEB21, same time frame as you chose, buy a 48/50 bull call spread for 1.65. If KO remains above 50 @ expiration you get .35. (if KO rises you could paid out much sooner as well)

.35/1.65= 21% and you can do it in size you'd like. Using the $2,800 that T cost, it would =16 contracts*.35=$560
Just something to think about and play around with.

[john]

Thanks Mike,
For me selling cash secured puts and covered calls is simple and easy to understand.
I don't quite understand what spreads are, I have bought calls and puts before
For me that's a good way to lighten my wallet.
Could you explain spreads a little? In your example above what happens if KO closes below 50 what happens?

[fenders53]

(01-04-2021, 02:24 PM)john Wrote: I guess for better or worse I have started to Look at each "trade" as a "deal" rather then an "investment"
The above potential monthly returns are what prompted me to do it.
Would there have been other, better ways to trade this? Sure, possibly
I am here to serve as an example time will tell if its good or bad.
I enjoy the friendly back and forth

Good because I hope I never discourage anyone here by being overly critical.  Nobody is ever going to go to the poor house because they missed a 100 share T entry or exit by a buck. 

IMO T is a good conservative stock to learn options.  You won't get bit very hard at the correct end of the trading range.  I have about ten conservative tickers on the radar at all times and I try to wait for a few to be in the prime zone so I can pounce with a bigger bet.  When in a doubt a small bet and stay a little farther out of the money.  Paul mentioned in another thread he is very conservative by nature.  That's OK, he can enter mostly very conservative options, but you have to know when it's time to step it up a bit and take a bit of a chance.  KO drops well under $50, you gotta know when it's time to make some folding money while the risk reward is there.  I strongly prefer to sell some of my options close to the money.  The premiums are much larger when you are actual risk of being assigned.  You can do that and still keep an overall conservative bias in your trades.  I also sell a few options on lower dollar stocks and get a 5% option return some months.  You have to be very willing to own those stocks.  I've successfully sold options 5-10 times on some tickers with good premiums.  The market will make you own them or take a loss on your option eventually. 

After all this said, forcing a trade is trouble sooner rather than later.  When I am looking to be conservative, I am usually selling options on a day when the premium is going up.  Like you said John, you meant to do this last week when it was a better bet.

[fenders53]

I posted a lot of option trades on the big thread today. Trade of the day was an ALE covered call at strike 65 JAN 15 for 1.10. That's a good premium for a financially solid utility stock with a highish div. There is usually no trading volume unless I make it and it takes hours lol. I am averaging about two round trips covered calls a month. A few covered puts as well. One of these days my puts will get exercised and then I'll own 200-300 shares. Then maybe I can be the ALE option WHALE. The spreads on ALE options are just stupid. Like no bid/$10.00 to get things started. It might take a day but eventually somebody gets impatient and pays what I regard as way too much. I better not mind getting assigned because I won't be dumping a contract in a hurry.

[NilesMike]

(01-04-2021, 07:08 PM)john Wrote: Thanks Mike,
For me selling cash secured puts and covered calls is simple and easy to understand.
I don't quite understand what spreads are, I have bought calls and puts before
For me that's a good way to lighten my wallet.
Could you explain spreads a little? In your example above what happens if KO closes below 50 what happens?

In my example you are buying 48 call because one is bullish on KO (assumption made), the 50 call is sold to help offset the cost of the 48 call you just bought. Total outlay $165 to make $35 in 32 days.

During the life of the option 3 things can happen. KO climbs up to 55ish or more (result is you can sell your spread early and make the $35)(regardless how high KO goes your max profit is $35) KO can stay flat (and you get your $35 at expiration) or KO can drop. If it drops(at expiration) below$50 you will not get $35 and some of your $165 is gone. If it expires between 48 and 50, you will recoup that amount of your $165. Let's say KO is at 48.50 at expiration, you will recoup $50 of what you paid.

If KO is below the call purchased (48) the entire $165 is gone.
People complicate options way too much IMO. There are only Calls and Puts and you can only sell them or buy them. That's it. How you use them to express your impressions of the market is up to you.

[NilesMike]

(01-04-2021, 08:09 PM)fenders53 Wrote: When I am looking to be conservative, I am usually selling options on a day when the premium is going up.  Like you said John, you meant to do this last week when it was a better bet.

Actually last week when T was lower, the call premium is also lower. The puts would have been elevated. The play the was to just sell the put @ 28 for around .88 (now they are .60).

Sell puts when you think the stock is down, sell calls when you think stock has run a bit too far.

Like my KO trade last week, bought it back today for 50% return.

[fenders53]

Right but I thought he bought the stock after it jumped as well.  If not then good.  I occasionally buy shares then sell a call immediately but generally not in a low premium stock where a little SP movement helps.

[NilesMike]

(01-04-2021, 08:26 PM)fenders53 Wrote: I posted a lot of option trades on the big thread today.  Trade of the day was an ALE covered call at strike 65 JAN 15 for 1.10.  That's a good premium for a financially solid utility stock with a highish div.  There is usually no trading volume unless I make it and it takes hours lol.  I am averaging about two round trips covered calls a month.  A few covered puts as well.  One of these days my puts will get exercised and then I'll own 200-300 shares.  Then maybe I can be the ALE option WHALE.    The spreads on ALE options are just stupid. Like no bid/$10.00 to get things started.  It might take a day but eventually somebody gets impatient and pays what I regard as way too much.  I better not mind getting assigned because I won't be dumping a contract in a hurry.

I prefer to be the anonymous pilot fish.

[fenders53]

I am the whale of nothing lol. I have never really tried to trade options on a stock with zero volume. It is just odd I can get a fill at a good price but it's happened pretty consistently. Like I mentioned it's a process. I generally have to adjust the offer a few times and wait half a day. It might be impossible if I was trying to trade 3 or more contacts. I sure wouldn't make it the core part of a strategy.

[fenders53]

Closed an APD strike 250 JAN 15 put. Sold on DEC 21 for $319. Just bought it back for $31. That's an 85%+ return in two weeks. It's important to take a profit when it presents itself. It will almost surely expire worthless if I hold it 10 more days but I don't have limitless funds for this strategy. This frees up $25,000 now. I can far exceed the $31 premium left on the table gave up even if I just sell some very conservative out of the money puts that expire in a few weeks.

This was just meant to be informative to new options traders. You get to pick when you cash out whe it goes well in a hurry. Some cash out with a 50% profit and that works too. Over time you pick your strategy. If I am confident in owning the stock I will wait for 75% return on average. I also let some expire worthless if I don't need to free up capital if I have no immediate plans that require capital. Occasionally you get a short term gift when you guess right. I truly did want to own 100 shares of APD at $250 but that's not going to happen short of a real hard pullback. Just going long would have been better but I'm here now.

[NilesMike]

NICE! on the APD trade.

I am surprised ho low the volatility is on APD especially with earnings coming pretty soon.

You picked up the equivalent of nearly 2.5 dividend payments there. Very nice indeed!

On the divvy stocks that I have I try to get the equivalent of 12 dividend payments per year via options to augment the 4 the stock pays. Roughly 3X the dividend yield. And the fun of doing it.

Makes dividend stock investing a bit more interesting.