Another poster’s response is an excellent one, there’s a thread which I didn’t know about that discusses options only… but certainly options are a market perspective so it would be very appropriate to discuss them right here, but the other thread did have a great article which pretty much explains what I’m doing… the only thing it doesn’t do is explain really what options are in the first place…
Here is a must read, and it sort of explains what I’m doing with AGQ…
seekingalpha.com
But first, you really need to know what an option is in the first place, so you have a better understanding of what that particular market instrument really is…
First of all, options are really a form of term life insurance on the stock share, so if you hold shares of any stock or ETF, then one could buy puts to protect them from losing money if the stock goes down... there are calls and puts... calls increase in value when the stock goes up, puts increase in value when the stock goes down...
I never buy calls or puts, I only write them, writing the same as shorting them, and I only write calls... there are calls for nearly every month... option expiration is when the options for that month expire...
Many traders like to buy calls in large numbers when they think a stock will move higher, but it's extremely risky and you will most likely loss most of your money doing that... that's not really what the purpose of options are designed for, but it does make you money if you're extremely lucky, so I never try such a dangerous maneuver... when someone buys those calls, there has to be someone who sells it to them, that's what I'll do, I'll sell it to them and take in that money into my account... remember, insurance companies make money by writing insurance, not by buying insurance... I sell calls, I don't buy them...
Now, for example, with AGQ, there are options for every 5 point price, e.g., 200, 205, 210, 215 and so on, all the way up and all the way down… the option for the ETF price of 215, where it closed yesterday, the 215 strike price is called “at the money,” the 210 strike price call is “in the money,” and a 220 strike price call is “out of the money”…
As of the close yesterday, The August 215 call is worth 18.30, this means $1830 per call… it has that much time value, but is really worthless… if the August 210 call is worth 21.20, then this call is 5 points in the money, so its real value is only 5 points and has 16.20 time premium left in it…
Most at the money calls are valued at about 3 to 4 percent of the stock’s value, the AGQ calls are better than 8 percent, this means you can make 8 percent per month on the ETF…
Now, to skip ahead to what I’m doing, I write just in the money calls and take in better than 8 percent a month… that’s just about double your investment each year, not too shabby in a market where the price does nothing but move up and down getting nowhere fast…
So, that’s a quick summary of what options are and what I’m doing, be sure to read that linked article, it’s well written… if you have any questions, just ask…
GZ |
