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  • fatlittlepig
    replied
    If you structure the spread for buying 2/19 850, selling 900
    your profit potential is a bit higher but it seems to me the risk is disproportionately higher.
    seems like my first example is a better deal because the security doesn't have to rise at all to make a 100% profit.

    Current price:$Long Call

    Buy or write: Buy Write
    Option:19th Feb $850.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsShort Call

    Buy or write: Buy Write
    Option:19th Feb $900.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsSpread

    Spread price:$-20.55 (net debit)?
    Graph range:$ - $?
    Add calculation in new tab

    More output optionsEstimated returns

    TSLA at $850.65 on 21st Jan 2021


    Entry cost: $2,055.00 (net debit) see details

    Maximum risk: $2,055.00 at a price of $850.00 at expiry

    Maximum return: $2,945.00 at a price of $900.00 at expiry

    Breakevens at expiry: $870.56

    Share this on:

    Leave a comment:


  • Nysoz
    replied
    So you’re talking about just itm.

    buying 2/19 800c is 98.50
    selling 2/19 850c is 71.90

    so it costs 26.60 to open this trade.

    if both stay itm (flat/up), then your max profit is the delta (50.00) - premium (26.60)

    if it goes below 800 then both are worthless and you lose the debit

    breakeven is 826.00

    not a bad trade if you think TSLA is going to stay flat (above 826) or up.

    Just have to run these numbers on whatever underlying as TSLA premium is always crazy.

    Leave a comment:


  • Zaphod
    replied
    Originally posted by fatlittlepig View Post

    Yes I understand how they work. In your example however tsla would need to go to >1000 for your debit spread to have maximum return whereas if you structured your debit spread where both your buy and sell call were in the money, tsla would merely have to maintain or go up from current levels to profit. So in this example that follows you make 100% return if TSLA merely maintains it current value. Am i missing something?

    Long Call

    Buy or write: Buy Write
    Option:26th Feb $800.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsShort Call

    Buy or write: Buy Write
    Option:26th Feb $850.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsSpread

    Spread price:$-25 (net debit)?
    Graph range:$ - $?
    Add calculation in new tab

    More output optionsEstimated returns

    TSLA at $850.65 on 21st Jan 2021


    Entry cost: $2,500.00 (net debit) see details

    Maximum risk: $2,500.00 at a price of $800.00 at expiry

    Maximum return: $2,500.00 at a price of $850.00 at expiry

    Breakevens at expiry: $825.00
    You're not necessarily trying to get max profit but the amount of exposure you want for the most reasonable price. If the call you're selling like your example here is more expensive, you're short the spread and synthetically short from at least lower strike to upper, and the negative means you get paid that premium, and its your total upside.

    Leave a comment:


  • Zaphod
    replied
    Originally posted by fatlittlepig View Post
    Hi options aficionados, I have a play account on robinhood and am doing some option trading. What do you think about call debit spreads? Specifically in the money debit spreads where both the call you buy and sell have strike prices that are in the money. It seems this is more favorable, however most of what I read recommends buying the call near the current share price and selling a call with an out of the money strike.
    These can be good. The issue with buying them so ITM would be you are essentially on the wrong side of the risk/reward spread. There is very limited upside, lots of downside if it goes the other way.

    It would be cheaper and gain more even if it were simply right at the money. For example, using stuck prices from yesterdays close, a spread on spy using 383/384 is 0.60. You'd pay 60c and since spread is 1 dollar wide maximum payout 40c. However if you did 384/385 it would be 50c, etc...Now those are friday and atm and I'd assume you want longer term.

    It makes more sense to buy just out of the money with the spread there, and really the one you buy where you think it might get to reasonably. Even though options get cheaper in nominal price as you get further otm they are actually more expensive in implied volatility, so makes sense to be a bit otm as the option you sell will be even further and you benefit from a difference in IV between buy/sell. Spread width is important as it defines maximum loss.

    Sold weekly covered calls yesterday on my whole portfolio. Was nutty.

    Leave a comment:


  • fatlittlepig
    replied
    Originally posted by Nysoz View Post

    Debit spreads are essentially a cheaper way to buy calls or puts. The downside is that you cap your potential gains by the delta between the 2 strikes.

    say you think tsla is going to go up and current price is 850. So you buy the 850 call (71.90) and sell the 1000 call (24.80) for the same expiration (2/19).

    pro: cheaper than just buying the 850 call because you get some premium for selling the 1000 call.

    con: if TSLA goes to 1100+ then your profit is capped at 1000-850=150

    So it’s just a way to decrease risk (decrease your cost) by capping potential profit.


    when you’re talking about itm debit spreads, then I guess it depends on how itm you’re talking about. Generally options deep itm behave just like shares and there’s little extrinsic (time/volatility) left to profit from. Also the bid/ask spreads tend to be wider so you might not get the pricing you want
    Yes I understand how they work. In your example however tsla would need to go to >1000 for your debit spread to have maximum return whereas if you structured your debit spread where both your buy and sell call were in the money, tsla would merely have to maintain or go up from current levels to profit. So in this example that follows you make 100% return if TSLA merely maintains it current value. Am i missing something?

    Long Call

    Buy or write: Buy Write
    Option:26th Feb $800.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsShort Call

    Buy or write: Buy Write
    Option:26th Feb $850.00 Call Select option
    Price per option:$
    Contracts:# x 100 ?
    Total cost:$
    Manual entry optionsSpread

    Spread price:$-25 (net debit)?
    Graph range:$ - $?
    Add calculation in new tab

    More output optionsEstimated returns

    TSLA at $850.65 on 21st Jan 2021


    Entry cost: $2,500.00 (net debit) see details

    Maximum risk: $2,500.00 at a price of $800.00 at expiry

    Maximum return: $2,500.00 at a price of $850.00 at expiry

    Breakevens at expiry: $825.00

    Leave a comment:


  • Nysoz
    replied
    Originally posted by fatlittlepig View Post
    Hi options aficionados, I have a play account on robinhood and am doing some option trading. What do you think about call debit spreads? Specifically in the money debit spreads where both the call you buy and sell have strike prices that are in the money. It seems this is more favorable, however most of what I read recommends buying the call near the current share price and selling a call with an out of the money strike.
    Debit spreads are essentially a cheaper way to buy calls or puts. The downside is that you cap your potential gains by the delta between the 2 strikes.

    say you think tsla is going to go up and current price is 850. So you buy the 850 call (71.90) and sell the 1000 call (24.80) for the same expiration (2/19).

    pro: cheaper than just buying the 850 call because you get some premium for selling the 1000 call.

    con: if TSLA goes to 1100+ then your profit is capped at 1000-850=150

    So it’s just a way to decrease risk (decrease your cost) by capping potential profit.


    when you’re talking about itm debit spreads, then I guess it depends on how itm you’re talking about. Generally options deep itm behave just like shares and there’s little extrinsic (time/volatility) left to profit from. Also the bid/ask spreads tend to be wider so you might not get the pricing you want

    Leave a comment:


  • Tim
    replied
    Originally posted by BCBiker

    This is pretty dumb thing to say about a company about to post their 6th straight quarter of profit that has reached scale and is unlikely to ever post another quarterly loss... But ok. I’ve made $8M off of this junk company.
    You made $8M off of leveraged stock price movements, not earnings. Two different stories and this is a story driven investment. Just saying. It remains to be seen which story sells more and which is fiction or nonfiction. Two different books. The endings of each could be drastically different. Happy ending or a tragedy, remains to be written.

    Leave a comment:


  • fatlittlepig
    replied
    Hi options aficionados, I have a play account on robinhood and am doing some option trading. What do you think about call debit spreads? Specifically in the money debit spreads where both the call you buy and sell have strike prices that are in the money. It seems this is more favorable, however most of what I read recommends buying the call near the current share price and selling a call with an out of the money strike.

    Leave a comment:


  • Max Power
    replied
    Originally posted by xraygoggles View Post
    ...For leaps, yes, its the same thing as buy and hold the underlying shares of the company. But most option strategies are not buy and hold, at least when you are purchasing them. For ex, last year, when we had the massive bull run in tech, I bought some Zoom calls at 300 strike, and my timing paid off, since it took off soon after, and when I thought it was really into bubble territory, I unloaded them for a big gain. If I had held those till today, would be a whole different story, and would have lost a lot of the winnings...
    For sure, buying calls lets you have the "control" of the upside without putting up the full price. Zoom is a good one... I had considered it but didn't know how they were going to monetize it when the vast majority of users just do the free version. I saw it as anther Pandora or early FB, etc but with no real ability to sell ads. I missed the boat, haha.

    I was referring more to buying stuff to sell covered calls on it when I said it should be analyzed similar to potential buy-and-hold... quality and fundamental reasons should still be paramount for getting the 100, 200, 3000 etc shares. Basically, my watchlist for tickers to buy and maybe sell calls on is the same as my list to buy and trade or buy and hold... I want very good stuff at a good price for any - not just volatile stuff or low share price stuff (which options ppl tend to have blinders for since they contracts are affordable or the calls are cheap on).

    ...It is rly good to be able to have discussion on stuff like options and singles. This is honestly the first one I've seen here that doesn't get closed down or overrun with the "gambling, gambling... sounds too risky" folk.

    Leave a comment:


  • xraygoggles
    replied
    Originally posted by Max Power View Post
    If one can't afford even one single contract of GOOG, AMZN, AAPL, BABA, TSLA, QQQ, SPY, etc... then one clearly shouldn't be doing options on them (and probably not options on anything at all). LEAPs are fine, but you pay a fee rolled-in for it... just like leveraged index funds, etc.

    A popular one among new traders trying to "go pro" and do options on was RIG (maybe still is?)... since the share price was cheap and it was volatile. Then, they'd graduate to Intel and Tesla (when it was semi-affordable). Buying something simply because of high volatility and good options chain or simply since you can afford 100 doesn't always end too well. It's as if they start playing casino games due to the highest top prize amount... not the ones with best odds. If you are looking at share price at all or checking volatility more than company strength, options probably aren't a good idea. JMO

    In the end, options aren't any different than buy-and-hold. A decent trader owns and sells calls on stuff they like and/or want dividends on anyways (yet they sell assuming option prices show someone else and Mr Market likes it irrationally so). Likewise, puts should be on stuff one wouldn't mind buying. That foundational skill often gets lost in being eager. I don't think trading options is particularly difficult, but a lot of people lose their butt - and/or miss out on gains. The way to end up bag holding always was and always will be to buy for reasons other than a high quality company at a relatively good price.

    To me, Tesla is junk and will be junk unless they can make consistent profit. I wouldn't even do a 500 or even 200 put on it (and this is from a guy who used to own and follow it circa 2012-14). I don't want my money tied up on crap. Will elec cars be a thing? Sure. Will Tesla win the electric cars race? Maybe.... but they are priced as if they already won it (when they are consistently showing minimal or no profit on their QEs and have strong competition all around them - for cars and otherwise). How are Tesla roofs and cyber trucks selling? Lol. It would be a lot smarter and have less downside to buy TAN or similar tech/energy ETF and sell calls on that (if you believe in that sector), but to each their own. There is something for everyone.
    I didn't mean literally can't afford 100 shares, but more in the vein of not wanting to use a lot of your free cash on 100 shares vs getting a leap for 60% less, for example. Management of liquidity and free capital, to use in other plays. Are you referring to extrinsic value (theta) when you mention a fee rolled in for it? Or something else?

    For leaps, yes, its the same thing as buy and hold the underlying shares of the company. But most option strategies are not buy and hold, at least when you are purchasing them. For ex, last year, when we had the massive bull run in tech, I bought some Zoom calls at 300 strike, and my timing paid off, since it took off soon after, and when I thought it was really into bubble territory, I unloaded them for a big gain. If I had held those till today, would be a whole different story, and would have lost a lot of the winnings (both from time value and intrinsic value losses). However, when selling options, of course you hold and hope they don't go in the money.

    Leave a comment:


  • Zaphod
    replied
    Originally posted by Max Power View Post

    In the end, options aren't any different than buy-and-hold.
    On the contrary options have embedded leverage depending on the tenor and delta. It allows one to get leverage should you wish for a fixed (doesnt mean cheap) price without risking getting margin called or something of that nature.

    I dont think these are necessary anymore personally as one can just buy a 2-3x etf for cheap, but it does make sense.

    I'll buy LEAPS for their embedded leverage if I think we're going higher and I expect to make more than what I paid for them. I have (a small amount) LEAPS on four major indices at the moment. Likely to hold for a while.

    Leave a comment:


  • Max Power
    replied
    Originally posted by xraygoggles View Post
    ...rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon)...
    If one can't afford even one single contract of GOOG, AMZN, AAPL, BABA, TSLA, QQQ, SPY, etc... then one clearly shouldn't be doing options on them (and probably not options on anything at all). LEAPs are fine, but you pay a fee rolled-in for it... just like leveraged index funds, etc.

    A popular one among new traders trying to "go pro" and do options on was RIG (maybe still is?)... since the share price was cheap and it was volatile. Then, they'd graduate to Intel and Tesla (when it was semi-affordable). Buying something simply because of high volatility and good options chain or simply since you can afford 100 doesn't always end too well. It's as if they start playing casino games due to the highest top prize amount... not the ones with best odds. If you are looking at share price at all or checking volatility more than company strength, options probably aren't a good idea. JMO

    In the end, options aren't any different than buy-and-hold. A decent trader owns and sells calls on stuff they like and/or want dividends on anyways (yet they sell assuming option prices show someone else and Mr Market likes it irrationally so). Likewise, puts should be on stuff one wouldn't mind buying. That foundational skill often gets lost in being eager. I don't think trading options is particularly difficult, but a lot of people lose their butt - and/or miss out on gains. The way to end up bag holding always was and always will be to buy for reasons other than a high quality company at a relatively good price.

    To me, Tesla is junk and will be junk unless they can make consistent profit. I wouldn't even do a 500 or even 200 put on it (and this is from a guy who used to own and follow it circa 2012-14). I don't want my money tied up on crap. Will elec cars be a thing? Sure. Will Tesla win the electric cars race? Maybe.... but they are priced as if they already won it (when they are consistently showing minimal or no profit on their QEs and have strong competition all around them - for cars and otherwise). How are Tesla roofs and cyber trucks selling? Lol. It would be a lot smarter and have less downside to buy TAN or similar tech/energy ETF and sell calls on that (if you believe in that sector), but to each their own. There is something for everyone.

    Leave a comment:


  • Zaphod
    replied
    Originally posted by xraygoggles View Post

    I think LEAPs have a space in a portfolio. Takes advantage of leverage and having to use less capital, while essentially moving in line with the underlying stock (assuming delta > 0.9). IMO there are 2 types of stocks which leaps work best for: rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon), and higher growth stocks where you want to take advantage of leverage for greater returns (Paypal, Square, Twilio).

    Buying leaps on very volatile stocks like Tesla is risky, because of both the very high premium and IV, and the risk of large dips. But of course the reward is huge, if it works out.
    All true, and leaps tend to be cheaper, as noted in the other post, its cheaper to buy same strike moneyness for 1m than 1x/wk for 4wks.

    Leave a comment:


  • xraygoggles
    replied
    Originally posted by Max Power View Post
    Again... avoid long term calls over ~1month except on very low volatility stuff (utilities, dividend cows, etc)
    I think LEAPs have a space in a portfolio. Takes advantage of leverage and having to use less capital, while essentially moving in line with the underlying stock (assuming delta > 0.9). IMO there are 2 types of stocks which leaps work best for: rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon), and higher growth stocks where you want to take advantage of leverage for greater returns (Paypal, Square, Twilio).

    Buying leaps on very volatile stocks like Tesla is risky, because of both the very high premium and IV, and the risk of large dips. But of course the reward is huge, if it works out.

    Leave a comment:


  • Max Power
    replied
    Originally posted by Nysoz View Post
    ...I was selling 25-45% OTM on monthlies.
    There is no action on that for 99.99% of stocks traded.

    The few that have it are ones with pretty shaky valuation that you'd be almost be better day/week flip trading. If it stabilizes (becomes a profitable company), the margins will disappear and there will be no action on far OTM unless it's long term (like any regular stock).

    GL though.... again, works until it doesn't.

    Leave a comment:

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