i am thinking of selling some 50 kbh oct calls. IV is high right now due to earnings, and with all the news out concerning suffering #s for home builders, I just can't imagine this a bad sale. any opinions? I really would like to sell the 45 calls, but I'm not sure I'm gutsy enough for such a close call. regardless, I am shorting the stock at the same time and just don't see how it and the rest of the homebuilders are holding up so well. After the fed meeting is done tommorow, I'm going to guess reality is going to hit all of the homebuilders and they'll sink 10%. The anticipation of sinking rates must be supporting these stocks - but when the announcement happens and people realize we're years away from a change of bias in housing (and quarter or half point drops in interest rates can't even fix this problem), I'm assuming they will sell off hard. Any concurrences or disagreements?
You are shorting underlying + naked calls? How do you feel about russian roulette with 5 loaded chambers?
I think it could work out as a good trade if you know your downside and are ready to anticipate on that.. maybe buy some cheap far out of the money calls to limit downside. I really don't see the gambling part in this one.. guess if you're long stock stock and short puts that's also considered gambling to you?
of course not.. what would be the difference going into the FED with long stock or short stock? I wouldn't do neither of that myself, but there is really no difference, other than if you're long you could lose a maximum of 45 dollar per share..
The point is not whether you are long or short stock, the point is that he/she is both short stock and short calls!? Why expose yourself to double whammy!?
That depends on how you look at it: the short stock will yield a one on one profit if the share price drops; the short calls will yield a profit if the stock price falls, remains the same or rises just very little, depending on the strike price. Payout on both instruments is very different. You could say that short at the money calls resemble a neutral/bearish bias (profiting from theta), whereas short stock resembles a strict bearish bias. So double wammy or not? To be short 1000 shares or short 500 shares and 5 short call options will give you the same downside risk.
risk: potential unlimited. As I advised, would be good idea to hedge yourself by buying some far out of the money calls. reward: uncertain --> exactly the same as you would go long a stock or short puts.. Saying otherwise would amount to subjective risk assesment major risks for this position are a possible capture of osama, or take-over bid, vs. a market crash/bookkeeping fraud in company if you were long the stock or short naked puts.