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

[crimsonghost747]

Zero assignments for these monthlies. It was a close call on DIA though, I'm surprised I got out of that one alive.

I have one troublesome position: GOLD CC play. I'm not in a huge hurry with this but it's pretty obvious that this position will end up being a loss so might as well get rid of it sooner rather than later. Luckily it's just 100 shares so the loss won't be more than a few hundred $.

[fenders53]

(08-20-2021, 11:50 PM)crimsonghost747 Wrote: Zero assignments for these monthlies. It was a close call on DIA though, I'm surprised I got out of that one alive.

I have one troublesome position: GOLD CC play. I'm not in a huge hurry with this but it's pretty obvious that this position will end up being a loss so might as well get rid of it sooner rather than later. Luckily it's just 100 shares so the loss won't be more than a few hundred $.

I decided when I entered gold to try to confine it to dividend paying miners.  I am OK with sitting on a small amount of shares long term.  At some point gold spikes and I'll have the option to get out.  There are better choices if you want to run a covered call or wheel strategy though.  I do sell calls on mine though and take the chance I could sell shares under cost.  I am down to 100 shares each of GOLD and NEM.  Both of the current positions are down 10% but I have been selling calls on any sort of a run the past year or so.  More trouble than it was worth but the positions are definitely profitable overall, and the commodity is low.  

I diversify my put sells across sectors.  It greatly reduces the chance I will have more months like this one.  I really wanted to sell many more oil related puts a few months ago because premiums looked good.  Glad I didn't.  If they all crash land here I am OK with the share % in my port.  Plus I can tell myself how good the dividends are like a sad littl dividend worshipper.   .

[fenders53]

A post from NilesMike on my retirement thread.....

"If it was smart to buy the options I am selling I'd probably know after a couple thousand trades the past few years."

You are mostly selling naked puts, right? Pretty close to the money as well, right? A neutral to bullish directional opinion. If you or I had a bullish opinion, why we would we buy puts? We wouldn't, but guess who may?

You brought up NUSI strategy of using a collar for protection and capture some of the upside. THAT'S who is buying your puts. They hope the put expires worthless as they capture the upside.

That's the part that gets into people's heads, thinking that you are selling a put to me and I bought it as a speculative trade with bearish opinion. That is definitely not the case.

OK, well first of all I enjoy the back and forth.

I am selling covered puts. With retirement approaching it was safe money yielding 2% and I was good with that until it couldn't happen anymore. Mostly I am selling puts on stocks I'd be fine with adding more to or maybe I don't own them yet. That is half my game with an extremely high win %. The tickers rotate but I straddle something boring like MET-HRL-JNJ for a year at a time as the stock drifts in a range. If I was truly conservative I'd leave it right there. I am selling insurance to some, and I'm sure I am a leg on somebody else's credit or debit spread or whatever.

Next we have the "tweeners". XLE where I am trying to own some but not too much. If the income is still there for another month I will roll again if I think it might work. Some of my buyers are gambling commodities. I am gambling some too as I don't believe in the sector long term.

Then there are the SPAC stocks. 90% of those who went long the past year are deep underwater. Then you have the shorters paying ignorant high premiums buying a put from me. PLTR-SOFI-TTCF. I have lost zero times because these fools take it too far. I'll wait as long as necessary to enter. I can go watch them cry in their beer on Reddit. They post their "loss porn" accounts there daily. It's insane the risk they will take. A couple days ago, whatever day the market dipped this week, a young man took his entire $60K account and bought like 1500 OTM SPY put contracts that expired 6 hours later cuz YOLO. Literally two hours later he left with a 43K loss because it suddenly occurred to him he would be flat broke in another hour or so. Unbelievable!!! I never said it was you, but a lot of these fools will pay a crazy amount of premium for a WAY out of the money contract that expires in a week and the stock is already crushed and sitting on known support. Companies I have researched and I am willing to buy since I maintain almost zero spec long. I always expect to be assigned, but I can usually escape fast because the fools don't understand theta. After about 40 successful trades in a row I'll be OK if I eat one. Same fools will pay too much for a call a few weeks later when the stock bounces a bit.

As I mentioned above my bane was conservative but overvalued stock this month. CMI wiped out some of the easy money trades. I'll learn from that because it was my fault.

Don't be offended when I mock the option buying gamblers. I am not challenging you personally. I am challenging the fools real bad at stats. I doubt I ever run out of them. This trick is worth 3-5K a month 10 months a year, for years now in an up market. When the market resets I'll lick my wounds that month and reset. Nothing works every month but I have some cushion now. I put some of these profits where I can't lose them every month.

Mostly I just stay conservative because it works.
.

[Dividendwayfarer]

A option newbie enter his first covered call for PNW at a strike price at $95, expires on Oct 15. Hopefully it will turn out ok.

[fenders53]

(08-23-2021, 04:49 PM)Dividendwayfarer Wrote: A option newbie enter his first covered call for PNW at a strike price at $95, expires on Oct 15. Hopefully it will turn out ok.

Welcome.  What premium did you get for that?

[NilesMike]

(08-23-2021, 04:49 PM)Dividendwayfarer Wrote: A option newbie enter his first covered call for PNW at a strike price at $95, expires on Oct 15. Hopefully it will turn out ok.

Welcome to our humble discussion.

You have an 88% probability of it working out plus the risk is heavily priced to the downside.

Good luck

[Dividendwayfarer]

(08-23-2021, 05:37 PM)NilesMike Wrote:

(08-23-2021, 04:49 PM)Dividendwayfarer Wrote: A option newbie enter his first covered call for PNW at a strike price at $95, expires on Oct 15. Hopefully it will turn out ok.

Welcome to our humble discussion.

You have an 88% probability of it working out plus the risk is heavily priced to the downside.

Good luck

For my education, how did you come up with 88%? Are there resources you will point to for a newbie like me?

[NilesMike]

(08-23-2021, 06:25 PM)Dividendwayfarer Wrote:

(08-23-2021, 05:37 PM)NilesMike Wrote:

(08-23-2021, 04:49 PM)Dividendwayfarer Wrote: A option newbie enter his first covered call for PNW at a strike price at $95, expires on Oct 15. Hopefully it will turn out ok.

Welcome to our humble discussion.

You have an 88% probability of it working out plus the risk is heavily priced to the downside.

Good luck

For my education, how did you come up with 88%? Are there resources you will point to for a newbie like me?

When I checked the option chain your strike had a 12 Delta. 12% likelihood of expiring in the money hence 88% probability of expiring out of the money.

I use Thinkorswim platform, it's pretty much the leader.

[fenders53]

First of all would you be interested in watching a few youtube videos on option basics? They are pretty long but you can watch them in sections. The young man is very thorough and easy to follow.

I'll let Mike explain the specific math on the probability if he likes. It is available on option software. I usually just grab it off my phone in my TD Ameritrade APP.

Option prices are calculated with a set of complicated math formulas. You don't need a thorough knowledge to begin learning. There is a considerable amount of "art" to successful doing this, to adjust it to your needs and personality. I start with the basic numbers, and my experience allows me to refine the strike and expiration date.

Here are a few basic tips that shouldn't be too overwhelming. I'll stick to covered calls for now but the inverse is true for put selling.

-88% is the probability your option expires worthless to the buyer. That's a very safe option. I tend to sell options around 70%. Higher if I think my stock will run and don't want called away too cheap and believe a catalyst to move the stock is probable. If I want to ditch a stock I might go as low as 50%. The premium will be considerably higher but the strike price will be near the money. (i.e. current stock price is 75 and I sell a call at maybe 78). If exercised the shares would be worth $300 more than today and I get the premium.

Until recently I had 500 shares of PFE in my trading account. I plussed up in early vaccine development. I sold calls scattered at different strikes and dates. 2-3 open at all times. Stock churned and I collected a lot of premiums for many months. Last month it blew through most of my strikes and I rolled a few contracts forward to raise the strike and collect some more premium, let a few just get exercised. This month it blew through the new strikes. End result all shares gone, some of them too cheap, and a ton of option income collected for many months. Maybe I would have come out ahead if PFE runs a few dollars more which is sure possible. I considered it a safe trade though as I collected income long ago. I was in decent shape if PFE never ran.

You are just trading one contract for now, but those are the decisions you make. If you play this game you don't cry over spilt milk. You make your trades well thought out with the information you have today. Try to make the worst possible outcome an acceptable outcome to you. Selling your PNW at $95 is quite profitable I assume? Selling calls on it ten more times shouldn't be a horrible outcome either. You can make money on stocks that turn out to be a complete dog over time. Stable stocks stuck in a trading range for a long time are among my favorites actually. Volatile stocks are much more difficult to manage and that is why the premiums are higher.

[Dividendwayfarer]

(08-23-2021, 07:42 PM)fenders53 Wrote: First of all would you be interested in watching a few youtube videos on option basics?  They are pretty long but you can watch them in sections.  The young man is very thorough and easy to follow.

I'll let Mike explain the specific math on the probability if he likes.  It is available on option software.  I usually just grab it off my phone in my TD Ameritrade APP.

Option prices are calculated with a set of complicated math formulas.  You don't need a thorough knowledge to begin learning.  There is a considerable amount of "art" to successful doing this, to adjust it to your needs and personality.  I start with the basic numbers, and my experience allows me to refine the strike and expiration date.  

Here are a few basic tips that shouldn't be too overwhelming.  I'll stick to covered calls for now but the inverse is true for put selling.

-88% is the probability your option expires worthless to the buyer.  That's a very safe option.  I tend to sell options around 70%.  Higher if I think my stock will run and don't want called away too cheap and believe a catalyst to move the stock is probable.  If I want to ditch a stock I might go as low as 50%.  The premium will be considerably higher but the strike price will be near the money.  (i.e. current stock price is 75 and I sell a call at maybe 78).  If exercised the shares would be worth $300 more than today and I get the premium.              

Until recently I had 500 shares of PFE in my trading account.  I plussed up in early vaccine development.  I sold calls scattered at different strikes and dates.  2-3 open at all times.  Stock churned and I collected a lot of premiums for many months.  Last  month it blew through most of my strikes and I rolled a few contracts forward to raise the strike and collect some more premium, let a few just get exercised.  This month it blew through the new strikes.  End result all shares gone, some of them too cheap, and a ton of option income collected for many months.  Maybe I would have come out ahead if PFE runs a few dollars more which is sure possible.  I considered it a safe trade though as I collected income long ago. I was in decent shape if PFE never ran.  

You are just trading one contract for now, but those are the decisions you make.  If you play this game you don't cry over spilt milk.  You make your trades well thought out with the information you have today.  Try to make the worst possible outcome an acceptable outcome to you.  Selling your PNW at $95 is quite profitable I assume?  Selling calls on it ten more times shouldn't be a horrible outcome either.  You can make money on stocks that turn out to be a complete dog over time.  Stable stocks stuck in a trading range for a long time are among my favorites actually.  Volatile stocks are much more difficult to manage and that is why the premiums are higher.

Thanks both for your info. I did watch a number of YouTube videos so I know the very basic. I need to study a bit on delta & probability. It turned out my call did not get executed so I’ll be writing another one. Principally I am ok with letting go 100 shares of PNW at a higher price and I did not hold it very long (not a super low basis so it’s not gonna be a huge gain; less tax concerns). I plan to use covered call on tickers I plan to trim (GIS, PNW, T, MO & CSCO) while collect some $$ if I can. A couple hundreds on each contract is all I’m looking at the moment.

[fenders53]

Delta and implied volatility are terms you need to be familiar with. Put the VIXX in your watch list. After a while you will be able to glance at the market and know if it is a good or poor day to get favorable premiums. Some of those tickers are tough to trade unless the market is very choppy. I try to get minimum 1%/month premium and usually more. It's just my number and you will find yours. If you cap your potential gain too tight but keep all the downside risk of holding weak shares it will fail you eventually. I try not to use option premiums to rationalize holding stocks with fleas for too long.

[NilesMike]

Try this and continue on the learn tab.

https://www.tastytrade.com/definitions/option-delta