Introduction and backround. I think I have a good backround to have success

O(1) · Mar 31, 2017

Illini Trader said:
@sle, Through the course of this discussion with you I have learned to respect your immense knowledge in the trading arena as if far surpasses my own. And, I understand totally why would feel as you do because at first blink the "reward" vs the "potential maximum loss" on any one trade might very much look "rather un-interesting"

But, you are looking at it from the outside in and don't see how these option trades develop and behave even when they go bad. The downside it not nearly as scary as it seems from where you sit. I had a trade this week that went totally off the rails and not only exceeded my sale strike price but also my protection strike. I would be willing to share the actual details how the trade worked out in real time if anyone cares.

In any regard, it is not about any one trade that might be a big loser, but the sum total of all trades taken together as it is I guess in anyone's trading style.
More...

what irks me about the trade is that.. we've been in a low vol environment. And, there will be people blowing up. It reminds me of the saying, "everyone is a genius in a bull market..

but a trade is a trade. just make sure you understand the risks and what you are betting for/against

vanzandt · Apr 27, 2017

Still around?

misterkel · Jul 7, 2017

OU

Turveyd said:
There both the same ?? 1 is shorting the Put's value and the other the Call's Value.

Ofcourse the Put has a limited upside, $20 stock the max option value is $20 only if they go bankrupts, so the risk is atleast capped.

The Call on the other hand, has no theoretical upside, it could go to $100 therefore a value of $80.

But lets face it, stocks are way more likely to lose money fast than go upwards fast, therefore the Short Put is still likely riskier.

* I used to trade options many many years ago, but never had the option to short options, IF you very careful and well studied than I can see the OTM Short's expiring worthless 99% of the time, so next day after they expire put 25% of your account at risk and odds are 9/10 months you'll grow the account 25%.

** you need to be way OTM, stay away from earning.

p.s. I blew my 6K account pretty much over night on a market gap and reverse IF I'd of went Calls and held for a week or 2 that 6K would of been worth 100K area
More...

Outcome is both the same. If you have a stock with a call and $5 of time value (ATM, ITM, OTM - doesn't matter) and the stock rises, you're max payout is $5 Plus strike - stock.
example - Strike $110, Stock $100, Premium $5 (total cost of option because OTM).
Max upside - $15 ($10 move plus $5 premium).
With p/c parity, time value on Put is $5 plus $10 intrinsic - $15. If stock rises by $10, you make $15.

Stock stays in place - $5 earned on either trade ($0 stock move, $5 premium)

Stock drops - CC - profit to $95, delta 1 loss below.
NP - profit to $95, delta 1 loss below.

A covered call is a synthetic naked put. They are identical payouts, provided the premium is the same. And if it's not, that presents an arbitrage which the market will return to parity. (Obviously strikes must be identical.)

Edit - rereading your post, you seem to indicate the call is long, but it's a covered call - long stock, short call option.

misterkel · Jul 7, 2017

ironchef said:
Actually nowadays I am a net buyer.

Question for you sir: So risk-adjusted buying will come in at the bottom? Am I doing it all wrong?

Best wishes.
More...

I agree with earlier poster - spreads are best argument. I've been away from the game for too long. I should get in again with some short put spreads. GOOG anyone?

Log in or Sign up

Introduction and backround. I think I have a good backround to have success

O(1)

vanzandt

misterkel

misterkel