trying to be as risk free as possible and thinking of short put on TLT at 100 strike to pick up few bucks. My questions is what is it really mean if TLT gets below 100? do I just holding a exposure about 3% yield and that's it?
Have you never heard the saying "Buy Low, Sell High"? Watch the chart of TLT: high was somewhere around 150, ie. you missed it... And here you can simulate it yourself: https://optioncreator.com/stij24t I myself wouldn't trade it as the profit potential is minuscule and the risk high.
That you can easily read from the P/L chart at the bottom part of the optioncreator page. Just go to 90 (or enter 90 in the left box labeled "Min") and read the Profit/Loss value. A negative value is loss, a positive value is profit. When short selling Put, then the lower the stock price gets after opening the position the worser is it for the short seller --> rising stock price is good, but the profit is capped as this is the characteristic of a short put. Of course you have to enter actual values into the fields. Actual values you can find when you click on "Options" on the above YahooFinance page and then select the expiration date.... Above I said I personally wouldn't trade this (me as a mid-to-long term trader), but it could be interesting for shortterm-trading, ie. for daytrading...
Example: Sell the Jan. 100 Put for 2.35 ($235). If TLT closes above 100 on Jan 20th you keep the $235 and the put expires worthless. Trade over. If TLT closes below 100 on Jan 20th you will be required to buy 100 shares of TLT @ 100. If TLT is below 100 you can buy back your short put to avoid buying 100 shares. If there's little to no extrinsic value in the put you could have the 100 shares put to you at any time prior to expiration. Break-even is ~97.65.
But in a CashAcct he has to invest Strike - Premium, ie. 100 - 2.35 = $97.65 for the "possibility" of keeping the 2.35 after that long time till expiration (about 6 months). If it works then his profit will be 2.35 / 97.65 * 100 = 2.4 % in 6 months! IMO, isn't worth the effort, forget it! (Of course all $ values above to be multiplied by 100)
I'm less concerned about the earning, but more interested in the potential risk / downside since I just want it to be a bit higher thank the saving's rate. My question would be in what scenario would I suffer aignificant loss or wiped out in this case?
What kind of account do you have? (Ie. is it a CashAcct or a MarginAcct?) How much does your broker demand from you to invest to be able to open that position? Ie. either the required cash amount or margin amount. This is the most important value for P/L calcs. In my above example you can lose the $97.65 (ie. Strike - Premium) should the underlying drop to 0. If the underlying drops to 50 then your loss will be $47.65. At 90 your loss is: $7.65 (multiply these $ values by 100 for each # of contracts). Just see in option creator: https://optioncreator.com/stij24t
its a JPMC self direct account and I'm only going to short cash secured put, my question is would TLT really goes to zero?