Jim (and all),
Thanks for the posts, suggestions, and most of all ... the war stories. I try to get my kids to learn from my mistakes in life ... they're not old enough to necessarily accept that wisdom ... I am! All of your stories of past 'heartaches' shall we call them, are most helpful. I can relate to many of these stories more than I care to painfully remember!!
What I was saying about the free puts, Jim, you sort of spoke to from the monetary side (potential lost gains, commissions) quite well. Here's one difference between our situations ... I PAY NO COMMISSIONS! This changes the playing field demonstrably. I would have either taken the whole position out, or left the whole position in, in the past. Whereas now, I can benefit by taking my money out and leaving the gain 'to ride' shall we say. I have learned from years of options trading on the buy side that I leave the fight in the middle rounds when the decision would have been mine had I stayed. (No ear jokes here guys!!). If you buy 'em, make 'em work for you until you unequivocally change your mind that they no longer make sense ... in that direction!! Anything else is accepting mediocrity, and the small gains will not offset the other losses in a commandingly profitable way.
This is one reason why I am a seller now. I really don't like buying options (80% expire worthless ... day trading is risky, causes heart attacks, and rewards inconsistently). Know the scoup on a stock for sure? Sell the other side 2-3 months out and watch the premium die for 30-40% fairly certain gains in addition to the gains you make in the underlying positions you hold in bonds, and other stocks. What I am saying is don't go into your margin, but make that margin work for you, using its 'availability' as the backing to write naked puts, and other option positions.
Tell me where a stock will be and won't be, and your security in your position that you are correct, and it is easy to devise and option strategy to 'meet the profitability bell curve for that stock'.
For instance:
INTC is at 145. You feel it should move to 155 in October. You are quite certain that it won't go to much below 135 or above 170. Here's the strategy:
Sell a Straddle at 155 (Sell a call and a put with an Oct expiration @ 155). You take in $2600 per straddle (total credit of $26 for both the put and call contracts sold). you have a breakeven at expiration of 129 on the downside and 181 on the upside. You will only need to buy back 1 of the positions as the other will expire worthless. The closer the stock is to 155 at expiration the higher your gain will be. You need only wait for 4 months. The margin req. per contract is somewhere around $15,000. This is not cash that you need to leave on the side, this is marginable securities that are already in your account earning income(hopefully).
This is one fairly simple strategy. If you can peg the trading range of a stock in the next two months, there are a variety of strategies that WILL make you large profits very consistently. There is risk, but this is easily mitigated through follow-up planning if the stock moves too much. I guess I am responding a little to the idea that Options are for speculation. Jim pointed out the two simple non-speculative option strategies: covered calls (very conservative) and naked puts on stock you wouldn't mind owning. I just wanted to point out that there are over 25 different strategies that are non-speculative, or lead to free speculative options through non-speculative writing strategies. My favorite ... the Diagonal Butterfly Spread ... too long to explain here.
Happy hunting ... its the data that is the hard work ... I'm just happy to be able to share that work, or might I say, learn from other's work. THANKS :) |
