I am a small time trader, been doing it for about 20 years. I have always traded stocks but lately have been thinking about options. I joined Wall Street Survivor and have done pretty good there. I am not out to get rich, just make a little extra money. I understand basic options, I bought Cramer's book and do not understand the advanced at all. So I will stick with basic until I fully understand how the advanced works. The problem is, my broker (TD Ameritrade) only approved me to write covered calls and cash secured puts. That kind of defeats the whole purpose, if I could afford to buy 100 shares of Google I wouldn't need an options account. I think I am going to move my account to Scotttrade but they said they could not guarantee that I could do naked calls with them either. I understated everything with TD, income, experience etc. Should I over state with Scott in order to get approved. Will they check or do they just go by the info I give them? I am a big boy and understand the risk so I will only risk what I am willing to lose. Any help getting approved would be appreciated. TIA
I am not going to recommend in a public forum that you lie, but I will tell you that's what I did when I first started trading options, since I could not see any other way to get started. But, as we do with trading sometimes, try to think about who is on the other side of your trade. The broker does these things because they are regulated, yes, but also to save their own skin. They do not want to you blow up. So don't blow up, OK? Option prices change incredibly quickly. Stops will not help you much. So try to size your trades right and buy some wings.
Cramer will not help you either. When the shit hits the fan, you don't have time to go check the fundamentals again. So set some non-fuzzy rules and follow them.
Paper trade, and continue learning. Lots of paper trading and learning. The market training is expensive, and accounts move down faster than up. Carl __________________ Enjoy life, it's limited. You only get as much as you take.
what reason do you want to do naked calls?...do you really mean naked calls, going short (selling) calls outright ?....what do you think that strat is good for? collecting premium at what risk?
Thanks everyone for the replies. I won't be doing any option trading until I have it figured out, or at least think I do. lol Traderlux, you are correct, I do not want to sell options, I want to buy them. That is what I have been doing on Wall Street Survivor. Tell me if this is correct- I buy a Feb. 80 call on CAT and pay a 15.00 premium. Cat stock is roughly 94.00 now. Once the price exceeds 95.00 I can sell it for a profit, minus commission. Is that how it works? My other question is, is there always a buyer for an option like there is for a stock? TIA
You could look at different brokers. You may get better commission rates as well as the ability to trade less restrictively. And I agree with Dracha. Small trades so that if everything goes to hell, maybe you only lose 10%. This implies no naked shorts. Keeps you and your broker happy. Verticals can be used to keep your risks down.
Hi Cramerica! You say you're gonna stay with the basics and you mentioned not being able to afford to buy the underlying right? To me, the basics would be to either buy a call or a put. when you purchase the opition, as you probably know you can only loose the premium you spent to buy it. The premium of course is a fraction of the price of the stock! I would stay away from option writing for now, especially writing naked calls!!! However here's an idea, if you wanted to sell (write) naked puts you could do that as long as you have the cash to cover your purchase should you have the stocks put to you. Writing naked puts is not as dangerous as writing naked calls, like I said, as long as you have sufficient funds for the purchase of the stock you are promising to buy should the price of the stock drop and you get exercised! You may very well aquire the stock so be sure it's something you don't mind owning (briefly) then as soon as you own the stock you can immediately turn around and sell calls to earn another premium, now that you have the stocks to sell, again, should you get exersized. Never sell more calls than stocks that you own!! If you own 1000 shares never sell more than 10 contracts!!! Right? each contract being for 100 shares. because you have the 1000 shares already, you don't have to go to the open market in order to get the shares to sell (which may have gone way up in price, right?) Just remember, if you decide to write, writing puts is a promise to buy a stock for a certain price, therefore as long as you have enough money you go ahead and aquire them, no problem! BUT selling a call is a promise to sell a stock for a certain price, what business do any of us have making this promise if we don't already own the shares we are promising to sell. If someone takes us up on our promise (exersises us) where we gonna get the shares?? The market right? what happens if the price of the stock has taken off since we made our promise, we could possibly have to go to the market and spend $12.00 dollars per share in order to turn around and be obligated to sell them to our option purchaser for your agreed upon price (the strike of the call that you sold) which could be say for example $8.00/share or worse, you just don't know what could happen after you sell the call, anything could happen right? That's why you should never sell naked calls. This is a strategy all on its own, where you continually sell first naked puts (in order to aquire the stock) once you've aquired them you immediately turn around and sell calls (just equal to the number of shares you own) for another premium. Your income with this strategy is solely the premiums you get from selling your options!!! Back and forth, back and forth! Think of it this way, selling naked puts is like getting paid to buy the stock you want to buy, not only this but in most cases you don't pay a commission on stock that is put to you!! (not 100% sure on that last point though) If you're doing this strategy you'll want always to sell the options for "at the money contracts" seeing as how these will net you your biggest premiums, which don't forget is your income for this type of strategy!! Hope this helps! let me know if you try it!