I have been interested in stocks since 10 years but hadn't invested seriously until last year (coming from a family background of fear towards the market). Today, I have long positions of around 6 to 10 stocks (may keep them for a few years) and 5 ETFs (global markets, etc) purchased at some COVID drops. Finally, in March I started brushing up academic basics of stocks (expected returns, portfolio management, weights, etc). By then options caught my attention. Started learning options in the beginning of 2020 from TastyTrade, my broker's courses (IBKR) and recently the book, Option Volatility and Pricing by Sheldon Natenburg. Have done a few paper trades but thought best to wet my beak through actual trades. My First Trade: Rationale & Plan I am interested in RKT, and through basic research figured it would not hurt to have 100 shares in my portfolio. Skimmed through their 10-Q and recent 8-K (no 10-K?). Wish, I did some more research but wouldn't like to be dragged down by "analysis paralysis". So instead of purchasing outright, why not *sell a single put*, and learn the basics on my platform. Strike price selection & days to expiry RKT was trading around 22.86. I would not mind owning the stock at 21.5 or even 20. At the same time, the closer my strike is to the stock price, the more premium I would get. Strike price selection: 21.5 or 21 3 days out Friday 11/20 Put @21.5 was selling for 0.11 10 days out 11/27 Put @21 was for 0.37 Risk Profile Final selection: 10 days out 11/27 put @21 for 0.37 Max Gains: $37 - broker commission (~36) (Prob of success: as per broker 78%) Max Loss: 21-0.37 * 100 shares = (2,063) (Prob of loss: as per broker <1%) However, I don't mind the assignment. My account has cash to own 100 RKT stocks. Top 3 Questions 1. Don't know how IBRK shows option trades yet, -1 means I sold it. Cost basis is 35 because of all fees taken away. However, why are values negative? Is it my broker's (IB) way of showing options? 2. Would this be a good way to learn? Starting small, small rewards and learning experience. 3. From your own openion what would be my next step? I will slowly increase my risk profile and account balance from ~30k (3k cash) to ~ 40k. Next trade: Plan to do this to PLTR because I like the company, and already own 100 stocks. + 100 wouldn't be bad. So either selling a single put or selling a single covered call.
If you actually don't mind assignment, sell a put at the money - that's where the greatest extrinsic value is. E.g., the 22 RKT put 30 days out is going for ~1.65; if it expires OTM, you get $165 against your eventual cost basis on it (at which point you sell another one). If it's ITM, that puts your basis at 22-1.65, or 20.35. I sell quite a few CSPs, and the above is similar to what I do in my IRA. You get to either grow your account or hold stocks you want at a better price than they're selling for today; a win either way.
Thanks for the insight. I looked into it and took a call on a CSP on PLTR just today: Dec18'20 18 Put for 2.43 Max Prof: $243 (- random commission) Max "Loss": 1,557 i.e. I would get a position at 15.57. Better than what I was initially planning for. Thank you. Looking forward to being a productive member of the forum