option trading question

Discussion in 'Options' started by evan20002, Dec 24, 2012.

  1. evan20002



    pls help on option trading:

    buy in one hand of ABC stock (10.98) 2000 per hand
    paid 21960

    sell out $10 call, get premium 2180 (1.09)
    sell out $12 Pull, get premium 1980 ( 0.99)

    the option will hit and I will sell my stock out.
    what my goal is to get the max of premium

    total 4160, around 18% profit

    then, next month, I will buy another stock and repeat it again.
    Is it workable? any issue i do missing?

    handling fee : not counted
    max risk : the stock ABC drops alot...

    after 12 months, I will get 49920
    is it possible?

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  2. It is possible but not likely.
    Your ABC stock must stay at a certain price level at the expiration time and not move far from that level either way. So, yes, if you find a stock that can cross that same price 12 times a year at exact days you could make your numbers.
  3. Bry


    First, if ABC is at $10.98, and you sell a $10 call for $1.09, you have only made $1.09 - 98 cents= 11 cents, or $11 per call. This is because there is a 98 cent difference between your stock price and call strike price.

    Second, you cannot sell puts as part of your plan. That is a completely separate situation.
  4. Thomas012


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  5. Let me guess. For a fee, you will tell me how?
  6. Bry


    Hi OP,
    I thought about it some more and realized you wanted to sell puts after getting cash for your covered call position. Once again the profit you think you receive is much more than reality because you need to subtract the difference between your strike price and stock price.

    Usually sellers of covered calls look for the most profit by selling calls slightly out of the money, so at 10.98, you would want to sell 11, 11.5, or 12 calls. Remember, if your 12 calls were assigned to you, you would sell your stock at $12, thereby earning the option premium and $1.02 on your ABC stock.

    Another risk associated with selling covered calls is that the stock goes way up in price and the covered call seller misses out on the potential profits. Say your 12 calls get exercised but the stock goes to $15, another $3 of profit was missed.

    I hope that helps.