01-06-2021, 05:38 AM
(01-05-2021, 06:43 PM)pdaignau Wrote:Paul(01-04-2021, 09:20 AM)fenders53 Wrote: PUT Strike 28 EXP 1/15 Premium received 51. Currently 41 Up 10
PUT Strike 29 EXP 1/8 57/86 Down 29
CALL Strike 28 EXP 1/15 60/65 Down 5
CALL Strike 30 EXP 1/8 38/11 Up 27
CALL Strike 32.50 EXP 1/22 54/3 Up 51
This is all about consistent income for me. I have no emotional attachment to T. T pays a div this week so that is mostly locked in. I have collected $260 premium up front on these contracts and the extrinsic values should fall rapidly as expirations approach. This doesn't have to work out perfectly to be a win. We'll see what happens.
It took me a few minutes to understand what you meant by "Up" and "Down" on each option. It's the difference you would make if you closed out the position by buying the same PUT/CALL.
A few questions to help to me better understand,
It seems, because AT&T was in the middle of a range and/or it was a "boring income stock", you simply bought PUTS and CALLS surrounding its current price. Then, when the stocks price fluctuates enough, you close out positions for cheap. I'll have to see what your thinking is on rolling these forward for small losses.
- When did you write all these?
- Is there a name for the strategy you're doing?
My quicky-and-easy take-a-way would be to watch the two Cash Secured Puts (CSP) I wrote for Feb. 5th for an opportunity to close them out for a fraction of the cost I made. If lucky, I could free up my cash sooner allowing me to write more CSPs.
Thank you for sharing,
Paul
I'll try to not write a novel but I probably will anyway.
I know I often get too verbose. I love to chat stocks. If I don't answer thoroughly enough just speak up and we'll expand on it. I sometimes have 30+ options open simultaneously. I could cherry pick some that make me look like an option rock star. That is not why I am bothering to type here. What I shared is more real world. I don't know exactly how it ends but I know how I got here. It occurred as T moved around. This is NOT an option straddle, but in affect I am straddling some long shares selling covered options to boost income. I've done this for years with T-KO-MET-WY etc. Had the share price not cooperated, I might have a couple covered calls and zero puts. I try not to "fight the tape". I try to sneak up on a position if I am not thrilled with valuation or anything else of concern. My mindset is I am not interested in buying T at 30+. I'll take a chance at 29. At 28 I am interested. At 27 or less I am willing to own a few too many shares. T is not risk free if interest rates rise or they keep screwing up major acquisitions, but mostly I am optimist they sort it out and the dividend is awesome. YOU decide your comfort zone. These trades occurred over the past month or so but it's not that important. T premiums are usually not there to just decide, "I'll buy 100 shares at 30 today, then the same day sell puts below and calls above 30". The trades come to me or I try to have enough discipline to leave it alone for now. Before I forget, I usually try to have some puts expiring shortly BEFORE ex-div in this strategy. Go ahead and assign me a 1 1/2% dividend check for a three day wait and I'll sort it out after that happens. If you leave an option open and the math makes sense, somebody WILL snipe your dividend. It's always a risk if you are snoozing around Ex-div time. I've even been exercised a month before expiration. It's rare but anything is possible. You just move on. I have some stocks I have some attachment too. You can't fall in love with everything you own or this doesn't work. They are just digital stock certificates.
Back to the trade, the strike 28 call is trouble now, and maybe even the 30. If the math works I will probably roll one or both forward today. I can't wait for ex-div. A few days before ex-div and other's make decisions. I'll show you the trade and the math when I execute the move.
I am currently at step one with KO on this strategy. I was called out of my shares a few months ago in the 51-52 range. Before that I collected over a dozen option premiums and made money on shares I was assigned in the 46 range. Made well over $1000 on a stock that went nowhere all of 2020, and I never owned more than 100 shares, but I was willing to be assigned many more at the right price. I only owned shares near the bottom of it's trading range. It was as safe as the stock market gets.
As far as closing out an option early.... I discussed this at length with NilesMike and I made a change. I used to ride them all out to expiring worthless. There are times I still do if I don't have a new good idea for the money. Always keep an eye on things. Do this enough and sometimes the market smiles on you. If you are sitting on an option you just collected 9-% of the possible premium on, why would you hold it two more weeks for a potential gain of ten more dollars. Anything can happen in the stock market. Bad news happens and stocks drop 20% in days. But that option back for $10. Take the $10K which is now risk free. Sell another option and get $100 or ore in new premiums. At least you are being paid something for putting capital at risk.
You have to do this for awhile and get punched in the face to truly understand the downside. MAR 2020 comes and suddenly I am forced to buy 2000 shares at 10% over current share price. It stinks but at least you got some discount with out of the money option sells. Nothing completely protects you when the market free falls. It's happened to me twice in 30 months since I went hog wild with the strategy. The overall return is excellent. It's a long game.
There is much more to options trading than T and KO. You can get 5% return in a month but always understand the risk. It's never free money in the end. Some of those even have good balance sheets but there is always a reason for the volatility. Cyclical, political risk, etc. Start watching the VIXX index. It's the volatility index. When it rises, option premiums rise with it, even in boring income stocks. I wait months with a little too much cash and pounce when it happens. Option premiums are a little better this week for the first time in awhile. Low market volatility + boring stock = poor premiums. Sometimes so low it's not worth the risk even though it's low. You'll get a better feel for this when you feel comfortable enough to tackle a stock that moves around a little more than T.
Regarding your last comment, yes buy them back weeks early if you have the opportunity. It will cause a new trade. More experience sooner will shorten the learning curve. If it turns out it costs you $10 the education is worth it. Just trading T options is a great start I would recommend, but it won't teach you everything. I hope the market gets hammered this week so I can sell some more puts. That is the twisted mindset of a conservative options trader. My core long positions will be fine in the end, but if I can make another $1000 in safish income this week I will call it a good week. I can buy more shares with that income.
Told you I type too much.