sold November aapl 405 puts at 8.65 Just so I understand this right.. The put buyer wants to see his option fall as much as possible, but in order for me to collect my whole premium the option has to close ABOVE my breakeven of.. 396.35 ? .. strike price minus the bid Also as a seller, wouldn't it be best to always sell the closest month to expiration?.. give the buyer less time to be right and time decay increases..
Wait for my book coming out next year. It will show you how to make lots of money selling short closing transactions for OTM puts on expiration fridays.
You will collect 8.65 - max(405-Stock,0) The max is if Stock > 405. You will get less premium. I thought you read a legit book on options.
"see his option fall as much a possible..." So the put buyer wants his option to fall in price?! But what if it is a she. There are different rules for woman put buyers and male put buyers. Did you know that?! " LMFAO You really don't know yet you are playing with fire....?! What is AAPL goes to 370 - what would you do? This is the last I waste my time offering you a response.
The OP read a book predicated on the author's insistence he was a "NYMEX local" when the author has no NFA record (BASIC).
I agree with you - to the OP, please calculate what will happen in AAPL falls to $370 per share, or what if it really gets pounded and falls to $320 per share for example. Then you will understand what playing with fire really means. And no, I don't think AAPL is likely to fall that much either, but anything is possible. Just think about people who sold NFLX 200 strikes when it was $240 thinking it would not fall $40. JJacksET4
Ha. It's annoying that people make up blatant credentials. As if being a NYMEX Local would have qualified him to write a book on options in the first place.
Guys, Allow me to reply to the comments about my book and for put option selling in general. I've lurked and posted comments on ET from time to time and I've privately e-mailed with many of you. I only post & reply to others with the overall intent on further educating and helping out traders who like to discuss options trading. See many of my other posts. The main thrust of my chapter on put selling on stocks is to choose stocks that you'd be comfortable owning if the stock happens to fall down to your chosen strike, and possibly even below the strike price. Stick to quality stalwarts that you think will eventually give you upside returns. No strategy is infallible, even put selling, and I never said that there were no risks involved. But if you don't overleverage and only stick with stocks you like, the strategy could be rewarding. And yes, the money you receive from selling options will only be captured if the option expires worthless or you buy it back cheaper than what you sold it for. I truly believe that selling options can give you an advantage over buying options as long as you have a general idea about where the underlying stock will go, and you choose out-of-the-money strikes. This gives you at least a cushion against faulty analysis on the stock, or just general bad timing. Choosing out-of-the-money strikes allows the stock to fluctuate normally without scaring you out too early. But of course you can never protect yourself against stocks that gap down 15 points overnight, but that risk is the same for everyone. And by the way, here's my NFA credentials: http://www.nfa.futures.org/basicnet/Details.aspx?entityid=0fA9SQkbfrI=&rn=Y I'm just known by my middle name. Always open to comments/questions. Let's keep it clean.
And you give up the upside to being right in your analysis... Do you have any actual argument in favor of this strategy, or is it all based on your feeling?
There is a 6% chance that price will fall below 366 and a 41% chance it will stay above 407.. according to tos. the delta on my option is 45 cents. A drop to 370 from my 405 strike would be a 35 point loss on my 5 contracts.. or $7,800 rather than $17,500 if the delta was closer to 90. I'm only selling puts on stocks I wouldn't mind owning. Current holdings are: wynn nov 120 puts @ 4.10 (115.90 breakeven) tif nov 75 puts @ 1.79 ( 73.21 breakeven) aapl nov 405 puts @ 8.65 ( 396.35 breakeven)