JC - here's another play. Since you would be willing to buy SUNW on margin today, you could sell Jan puts and use your margin to back the sale - you won't take a hit unless the stock is put to you, and then it will be the same or less than if you bought the stock today. Say you want to buy 1000 shares today on margin. Instead, you sell 10 contracts of Jan 27.5 puts, generating $3,750, and if the stock is put to you, you are effectively getting the stock for 23 1/16... If not, keep the premium and sell the next month's puts at another out of the money strike.
But you also want to place a bet that the stock will double by June, and if you also believe it will not go to 23 in January, you will not be put the stock. So you also buy June calls. June 35s are 4 5/8, so 10 contracts (1000 shares) will cost you $4,625. If the stock doubles (i.e. 52 and change), you will probably see those calls go to 18 or more. You make the put premiums along the way, maybe $3K a month if you are aggressive, and you make about $14K on the calls. Your risk is the call premium, plus the risk that you will buy against the puts (which was about the same cost as buying on margin to start with). Your gain is potentially around $30K, more than you would make buying the stock and without tying up capital.
Spreads are more conservative and more predictable but have less gain. For example, a bull put spread is where you buy a lower strike price put, and at the same time sell a higher strike price put of the same month. Your loss is limited to the difference between the two strike prices minus the net premium received, but your gain is also limited to the net premium received.
The bull call spread is similar - you buy a lower strike price call, and sell a higher strike price call of the same month. Your gain is the difference between the two strike prices minus the net premium paid.
One of my favorite sites for general options strategy is the stock exchange of hong kong - sehk.com.hk
good examples and not too much jargon.
And I would reinforce what others have said - options are higher risk than equities, the dynamics are different, and it is a good idea to do paper trades and see how your "gut feel" develops before jumping in for real.
Also I'm just an engineer so follow any of my suggestions at your great peril. |
