Intro to options

[Nysoz]

Yeah, usually you’ll want to sell options 30-45 days out at the maximum. There’s specific times where you can sell it further out but usually 30-45 is most efficient.

When selling covered calls, pick a strike you’re happy letting the shares go at. TSLA is going to have abnormal premiums right now because earnings should be 1-2 weeks away.

Otherwise pick good stocks, pick good strikes, don’t get greedy are the mainstays of selling options. There’s always more to learn (I’m still learning after 2 years) so feel free to ask any questions as well.

[Craigslist]

It's too easy to think of any strategy and think of it as you can't lose, but sooner or later, no matter how safe you play it, you can make a losing trade. Don't get greedy chasing premium, have a plan for when the trade goes against you.

Good luck! It's pretty fun and profitable, but can also be stomach churning at the same time lol.

My first trade was buying 100k in tesla @ 1004.50 yesterday, selling a CC 90 days out for 6600$. Then the stock went up 5%. I realized my first mistake was selling a call so far out because a 2 week ITM call was selling for the same price and that I shouldnt go so far out DTE. So today, I transferred the remaining 20k I have to a cash balance remaining of 11k and bought 2 CSP on AMD for 810$ at a strike on 136.

I don't know if im chasing premium, im basing my trades on the premium return but im more focused on my strike prices and my willingness to hold these stocks for long periods of time.

So I went all in some relatively, in my opinion, conservative premiums. I dunno I think my investment is risky and conservative at the same time, or maybe they were crazy.

BTW thank you for these threads and your contributions to them.

[Nysoz]

There's a lot of volatility now and comes with it high premiums and high chance of having the trade move against you. Keep the amount small and risk small until you get the hang of it.

It's too easy to think of any strategy and think of it as you can't lose, but sooner or later, no matter how safe you play it, you can make a losing trade. Don't get greedy chasing premium, have a plan for when the trade goes against you.

Good luck! It's pretty fun and profitable, but can also be stomach churning at the same time lol.

[Craigslist]

I just got into options yesterday, I'm playing it relatively safe right now taking in 1-2% per contract, I love this, this is the side hustle I was looking for my entire life.

[Zaphod]

Im sure you have gained tons of knowledge in the interim time from buying that option, managing it and everything afterwards.

That wasnt my point, just that one winning position doesnt = skill or knowledge and that will always be true. With options you're always buying/selling volatility in some way so I think that point is purely a semantic/10000ft view difference. Same with the bitcoin takes, few seem to grasp big returns/volatility go hand in hand. It doesnt necessarily make it "risky" its just how it is and cant be disentangled.

Again congrats on this great trade and management of it, its awesome.

[Zaphod]

Im sure you have gained tons of knowledge in the interim time from buying that option, managing it and everything afterwards.

That wasnt my point, just that one winning position doesnt = skill or knowledge and that will always be true. With options you're always buying/selling volatility in some way so I think that point is purely a semantic/10000ft view difference. Same with the bitcoin takes, few seem to grasp big returns/volatility go hand in hand. It doesnt necessarily make it "risky" its just how it is and cant be disentangled.

[BCBiker]

No offense, but just because you've won doesnt mean anything about knowledge. Does winning the lottery mean you know about probability statistics? No, it means you won, nothing else and you can know nothing, or be the worlds expert.

Dont confuse winning on a good bet, and incredible diamond handsing of it, with actual knowledge or skill. You do have skills of holding/diamond handsing and thats for sure, but it really says nothing to anything else.

Tesla is by no means a "safer" investment, that would be ridiculous. It is highly unusual and and unlikely a safe company ever has the kinds of returns that tsla has. You dont get massive return without some crazy volatility, they kind of go hand in hand. The shorter the time period the more true it is. Feel free to find me a stock that has 10x in 3 years with less vol than the s&p.

volatility is not equal to risk… to think that is quite a silly assertion.

An asset that has a clear path to go from $30B market cap to $10T with tons of volatility along the way is less risky than for example an asset that is currently $30B with a stagnant enterprise and no diversification and will be worth $30B 10 years from now and has minimal volatility.

I have not just won a good bet. I’ve sold covers when the stock was hot on January, bought calls and sold puts when it was low. I have over $12M in gains. In the markets performance is actually a reasonable indication of skill.

[Zaphod]

As someone who has made 200,000% returns I may not understand it but I’ve made transactions decisions that suggest I know a little something about it. I’ve also said long term the revenue opportunities for Tesla will make it a $8-20T market cap company so with that in mind being mostly long is the general way to go. You and others have said many things in this forum about Tesla that suggest you know less than nothing about the company. Many people have blinders to how large the markets are that Tesla has clear paths to dominance. What makes Tesla a safer investment than most is that they have 3-4 trillion dollar markets in their crosshairs so if they miss entirely on 1-2 and partially miss on the rest they are still going to be largest company in the world. You cannot say that about Google, Apple, Amazon etc, who each have at most 2 comparably smaller markets.

No offense, but just because you've won doesnt mean anything about knowledge. Does winning the lottery mean you know about probability statistics? No, it means you won, nothing else and you can know nothing, or be the worlds expert.

Dont confuse winning on a good bet, and incredible diamond handsing of it, with actual knowledge or skill. You do have skills of holding/diamond handsing and thats for sure, but it really says nothing to anything else.

Tesla is by no means a "safer" investment, that would be ridiculous. It is highly unusual and and unlikely a safe company ever has the kinds of returns that tsla has. You dont get massive return without some crazy volatility, they kind of go hand in hand. The shorter the time period the more true it is. Feel free to find me a stock that has 10x in 3 years with less vol than the s&p.

[Zaphod]

If they take the call, you get $ to buy something else. If they don't (and they often won't even when it is deep ITM), you get dividends all along.

You win either way. That's the point of covered calls. If the share price shoots up, oh well... that shouldn't be why you buy REITs. They more often stay fairly stagnant or oscillate around.

For example, I have dozens of CC contracts out on PSEC for $7 right now... bought them for around $5 last year and sold the CCs back when it was at around $6.50. It might stay up (nearly $8 right now), it might go back down. You would be surprised how many call buyers don't have the money to actually take the 100 shares even on a cheap stock and are holding them to see if it goes up further. Then, if it heads down in price, they panic since their call value shrinks very quick with time and share price drop. In reality, it doesn't matter to me whether they take them away or not... I'm making 10% on it in dividends... plus whatever I got in premiums when I sold the calls. I was never planning to make much/any on the share prices (or I would've bought something better for that purpose). It is actually pretty common on long term calls for the call to go fairly ITM and then back OTM by the end of the term... and it never gets taken when it could've.

You can do the same with F, WMT, KR, T, KHC or MMM or whatever that has fairly unexciting QEs, but it works even better on monthly dividend stuff like REITs or bond funds... those have a very tough time getting any momentum with monthly price dips to correct for divi, so you can just take the guaranteed win and force the call buyers to grab the contract to get the dividends... or let you have them.

They will always take your shares if ITM for a call (at expiry) if its a dividend stock its not uncommon for them to be exercised early for ex div capture. I've heard in the past it wasnt always the case for puts, but that doesnt really happen anymore either. You'll get auto assigned.

Your calls dont get taken, your shares do. Calls/puts are the contract for the underlying shares. Ofc price will move up/down and the contract will change price, you can buy it back cheaper or wait til expiry, etc...up to you.

[CordMcNally]

As someone who has made 200,000% returns I may not understand it but I’ve made transactions decisions that suggest I know a little something about it. I’ve also said long term the revenue opportunities for Tesla will make it a $8-20T market cap company so with that in mind being mostly long is the general way to go. You and others have said many things in this forum about Tesla that suggest you know less than nothing about the company. Many people have blinders to how large the markets are that Tesla has clear paths to dominance. What makes Tesla a safer investment than most is that they have 3-4 trillion dollar markets in their crosshairs so if they miss entirely on 1-2 and partially miss on the rest they are still going to be largest company in the world. You cannot say that about Google, Apple, Amazon etc, who each have at most 2 comparably smaller markets.

I'm glad Tesla has worked out for you. I think the truth is probably somewhere in the middle where many people here know more than you give them credit for (which is apparently less than nothing somehow) and you probably don't know as much as you think you do. Also, could you give any wider of a prediction range than $8-20T? A prediction from someone in the know, like yourself, should come with some dates along with those predictions. A perpetual bear will always think they're correct, too, even if the market has always gone up long term. Although I can't roll my eyes far enough back, I still wish you the best in your future investments (and I mean that).

[BCBiker]

I honestly don’t think anyone has a good understanding of TSLA.

As someone who has made 200,000% returns I may not understand it but I’ve made transactions decisions that suggest I know a little something about it. I’ve also said long term the revenue opportunities for Tesla will make it a $8-20T market cap company so with that in mind being mostly long is the general way to go. You and others have said many things in this forum about Tesla that suggest you know less than nothing about the company. Many people have blinders to how large the markets are that Tesla has clear paths to dominance. What makes Tesla a safer investment than most is that they have 3-4 trillion dollar markets in their crosshairs so if they miss entirely on 1-2 and partially miss on the rest they are still going to be largest company in the world. You cannot say that about Google, Apple, Amazon etc, who each have at most 2 comparably smaller markets.

[Max Power]

Max Power Why REITs specifically for selling cc on further out exp? I sell cc on VNQ but don't want to sell an ATM option with 6 months from now just for premium and likely get assigned. Or am I missing something?

If they take the call, you get $ to buy something else. If they don't (and they often won't even when it is deep ITM), you get dividends all along.

You win either way. That's the point of covered calls. If the share price shoots up, oh well... that shouldn't be why you buy REITs. They more often stay fairly stagnant or oscillate around.

For example, I have dozens of CC contracts out on PSEC for $7 right now... bought them for around $5 last year and sold the CCs back when it was at around $6.50. It might stay up (nearly $8 right now), it might go back down. You would be surprised how many call buyers don't have the money to actually take the 100 shares even on a cheap stock and are holding them to see if it goes up further. Then, if it heads down in price, they panic since their call value shrinks very quick with time and share price drop. In reality, it doesn't matter to me whether they take them away or not... I'm making 10% on it in dividends... plus whatever I got in premiums when I sold the calls. I was never planning to make much/any on the share prices (or I would've bought something better for that purpose). It is actually pretty common on long term calls for the call to go fairly ITM and then back OTM by the end of the term... and it never gets taken when it could've.

You can do the same with F, WMT, KR, T, KHC or MMM or whatever that has fairly unexciting QEs, but it works even better on monthly dividend stuff like REITs or bond funds... those have a very tough time getting any momentum with monthly price dips to correct for divi, so you can just take the guaranteed win and force the call buyers to grab the contract to get the dividends... or let you have them.

[Nysoz]

Nysoz I recently started selling covered calls for fun on a few of my "plays" and long term holds. Is there a particular delta or strike % you target for each contract? What have you found is the nest bang for your buck? Currently I target contracts with less than 30d to exp and usually target a delta around 0.2.

Edit: Just saw your strategy on TSLA. The stocks/ETFs I'm playing with have far lower IV so can't go that far OTM.

Yeah if you go by tastytrade, 0.2-0.3 delta with 30-45 dte is the way to go.

With TSLA I mainly use %otm and also current support/resistance. So like 15% weekly or 50% monthly otm. Also take into account any potential news/catalysts like earnings.

[Jarpee]

You are selling long term calls on regular/high volatility stuff then. Hmmmm.

Assuming any stock with decent volatility (or index covered calls... my main jam nowadays), you will do a LOT better selling monthly (2-6wks out) and for whatever % is reasonable to you... typically ATM-to-15% OTM at most - or they won't have any value and nobody buys those (why your statement above says you are obviously selling long term).

As you can read in any options book or article, most of the time decay price drop on the option happens in the last 3-4wks. So, a 1 month call will typically get you nearly as much money - at least half as much - as a 3mo (assuming no major QE or divi in play), and you can do that 1mo sell three times in a row... so just do that. You make more, and you will have far less scrambles to buy your calls back or be upset on missed gains when your 3mo call is ITM after a few weeks.

It is tempting to sell longer term calls so you can set the price further OTM and think you'll be "safe," and it is scary to sell a covered call for $82 when the stock is $80 and you like it, but you can always pass on selling that month. With the long term sells, you're leaving money on the table when you sell that option versus a shorter one, and more time is actually more risk on your part (assuming you are out to make money, not just get a nickel per share for something that won't happen... "no way." Obviously, any positive announcement or market twitch can shoot a stock up, and you are giving too much time for that to happen. Long term call sellers on volatile stocks are barely ever appropriately compensated... the call buyers will fleece you on those (then sell them back if you will buy them). The short term are not only more profitable but also actually less of a risk to call seller.

...REITs and divi cows and fairly boring stuff are the only things you generally want to sell long term calls on. I have some roughly ATM long calls out on portions of my PSEC, NLY, T, etc for spring or even the year's end. They will probably get taken from me a day or two before an ex-divi date, and I don't care... I set the price where I'm happy either way. Those boring ones with almost no volatility are apples to oranges with TSLA or INTC or even something like SPY, though. Don't sell those long calls on growth stocks and regular stocks... do monthly or even weekly. Good luck man

Max Power Why REITs specifically for selling cc on further out exp? I sell cc on VNQ but don't want to sell an ATM option with 6 months from now just for premium and likely get assigned. Or am I missing something?

[Jarpee]

Nysoz I recently started selling covered calls for fun on a few of my "plays" and long term holds. Is there a particular delta or strike % you target for each contract? What have you found is the nest bang for your buck? Currently I target contracts with less than 30d to exp and usually target a delta around 0.2.

Edit: Just saw your strategy on TSLA. The stocks/ETFs I'm playing with have far lower IV so can't go that far OTM.