08-23-2021, 09:08 PM
(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.