12-02-2018, 06:01 PM
(This post was last modified: 12-02-2018, 06:03 PM by crimsonghost747.)
(12-02-2018, 07:09 AM)fenders53 Wrote: Now it's my turn to ask risk questions. The risk/reward does not pass my standards for that ATT trade you just made. 1% upside. What do you calculate as your downside risk? Based on ATT recent performance I would estimate it at 5% the way T has been swinging around.
I think with short term options you can't really do "upside potential" vs "downside potential". Two reasons: first of all, theoretical downside potential is always 100%. But more importantly, with short term options anything above a couple % upside makes the premium essentially worthless. Take that T trade for example: a $31.5 call (5% upside) would have probably given me a premium of less than $5. That is 0.17% minus fees...there just is no point in selling that option.
It's more about how likely a move in each direction is.
In my opinion T below $30 is just too cheap. Even right now at $31.xx it looks cheap. Every time it has dipped below $30 it has bounced back fast. So while still possible, I saw that a decline would be highly unlikely from those levels, especially a decline which would last for weeks/months.
I wouldn't do this with a random stock. I've owned T for years and plan to continue owning for years to come. In this case I saw an easy 1% and took it. Usually my options are a bit further out of the money (and that would have given better results here) but I stuck with the easy money this time.
If it would stay below $30 then I would simply keep collecting the premiums weekly with similar options, as long as the price doesn't go too much below $30 (again, unlikely in my opinion) those options will give me anywhere from $15 to $30 per week. So 0.5% to 1.0% per week and you can add in the almost 7% dividend yield and we are talking about some serious incoming cash flow while I wait.