/biz/ - Business & Finance

Its called writing naked puts, and yes you too can do it. Just get a margin account, get approved for Level 4 (?) options trading, and you'll be well on your way to bankruptcy.

>>393720
Writers only make money when the options they write expire. Which is the majority of the time.

As far as I know.

>>393727

Why do people bemoan writing naked puts as irresponsible and speculative, but writing covered calls is a stodgy low-risk way for Grandma Millie to earn extra income on her AT&T shares? They have identical payoff structures by put-call parity, and you can always hold cash/use leverage to adjust your margin accordingly.

>>393816
Um, maybe because one has limited downside and the other has unlimited exposure? Just a guess, since I'm not "people."

>>393827

No, they're identical and both have limited exposure. Only shorts and call writing pose unlimited losses.

I write an named ATM put on XYZ corp. trading at $20 for a $5/share premium. If the stock goes to $0, I get assigned and must buy $2000 worth of worthless stock, which combined with my premium means I lose $1500. If the stock rises to $30, I get nothing more than my $500 premium.

I own 100 shares of XYZ. I write an ATM call secured by my shares for the same premium, $5/share. If the stock goes to zero, I lose all my investment but pocket the premium for a net loss of $1500. If it goes to $30, then I make $1000 on the stock, get exercised and lose $1000 on the call, and then keep the premium for the same profit of $500.

>>393853
You seem to know your stuff. How'd you learn? Do you recommend any books?

>>393806
The writer gets paid when they sell the options contract. The writer holds the risk that the buyer may or may not exercise the contract either until expiration or until the writer buys back the option. It doesn't matter who the writer buys the option from, it still closes his involvement.

>>393727
>you'll be well on your way to bankruptcy.
Oh you of little faith.

>>393853
>I write an named ATM put on XYZ corp. trading at $20 for a $5/share premium. If the stock goes to $0, I get assigned and must buy $2000 worth of worthless stock, which combined with my premium means I lose $1500. If the stock rises to $30, I get nothing more than my $500 premium.
However:
I write an named ATM *call* on XYZ corp. trading at $20 for a $5/share premium. If the stock goes towards *infinity*, I get assigned and must sell *infinity's* worth of stock for $20 each.

>>393926
Hence why you either make it a covered call or you make it a credit spread where you buy a further out of the money call which limits your maximum loss.

>>393929
This is my covered call. The other image is an actual position, this is a virtual position (paper trading) I was experimenting with.

>>393853
It seems like you better be pretty good at predicting price ranges because your profit is capped no matter what.

Seems like too much risk for such little upside.

>>393944
Covered Calls are a no brainer why they're good, I can explain if you want to know more.

For puts think of them like a limit buy that you can't easily terminate. You look at a stock and think to yourself, boy I'd like to own that stock. Now instead of putting in a limit buy which you can cancel at any time before execution you sell puts.

So you pick a price you are willing to buy the stock at, you search through the options chain to find a good deal at an acceptable strike. There is a bit of science and thinking to selecting which put you sell and at what price.

So you sell your put, collect your premium and wait. If the stock price goes up the option you sold becomes worth less and you can buy back the put and keep the difference. If the stock price stays the same the value of the put will decrease as expiration nears and you could buy it back at any time.

If the stock price goes down you may get assigned the stock and have to pay for the stock at the selected strike. Or you could buy back the more expensive put and take a minor loss depending on the movement of the stock.

Stocks rarely go to zero, but a 20% or 50% move or stranger does happen, it depends how well you know the company and understand its volatility. So only sell puts for stocks that you would be willing to own and would be happy that you got assigned the stock.

>>393944

>It seems like you better be pretty good at predicting price ranges because your profit is capped no matter what.

Uh, the only way to make money trading is to be able to predict price.

>>393921
>>393926
>>393923
>>393929
>>393937
>>393944
>>393963
>>393969

All of you, pls respond here: >>393902

>>394010
This

http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X

then this

http://www.amazon.com/Options-Futures-Derivatives-DerivaGem-Package/dp/0132777428/ref=sr_1_1?s=books&ie=UTF8&qid=1404167307&sr=1-1&keywords=hull+derivatives

http://www.teledata.info/

What do you think of this?

>>394010
Get Rich with Options
>http://www.amazon.com/Get-Rich-With-Options-Strategies/dp/0470046619

>>394049

junk

Bump for gooby.

>>393720
OP, if you don't think it's going to fall, just sell covered calls.

You'll have less risk and, if it doesn't go to the moon, you can just pocket the money as pure profit each month, or at least make the premium on decay.

>>394946
How much, about, does one make from selling covered calls? I know it completely depends on the circumstances, stock, prices, etc. But let's say a person is putting up $1,000. Or $5,000. How much of that, about is the person usually making back or is standard? $20 in a month? $1,000 in a month? What's average? What's rare? Thanks, Anon.

>>395995

Let's see with VIX in the 10s a one month 2 point OTM call on SPY is worth $94. But for it to be a covered call you need to buy 100 shares of SPY so a $19,700 investment.

So in one month you make $94/$19,700= 0.48%.

>>396042
>So in one month you make $94/$19,700= 0.48%.

>>396071

6% extra a year. Idk why the long face.

>>396104

It not "extra." It can even be at the expense of further gains. If SPY moves 10% in a month you make 1.49%.

Not only that if SPY falls 10% in a month you still lose 9.52%.

>>396104

CBOE's BXm buy-write index, an index which tracks this strategy is up 110% from 2009 lows.

SPX is up 196%, not including dividends.

-86% relative returns. And this is before paying short term capital gains on your short calls AND paying commission for each trade AND paying short term capital gains for each month your short call results in a sale of your stock position.

That why I said >>394049 is junk. Hurr durr covered calls and be rich. Free extra risk free returns!

My idiot uncle sold covered calls on our family trust from '08-'12. Opportunity of a lifetime missed so he could grab some shitty premium income and buy a new car. We didn't even lose much in 07.

7 years later I am still mad

>>396104
>6% extra a year
Anything less than 15% (more like 20%) a year is pleb tier.

>>396133
okay, fine, do a credit spread and lose it all.

>>396254

>covered calls and credit spreads are the only two options trades in existence