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Where possible I like the ability to write calls on the underlying asset for the residual income in a low-medium volatility environment

Is there the equivalent of doing this with real estate? I am aware that publicly traded REITs may have option chains but this isn't about those

I can imagine the challenges to liquidity but maybe there is some niche service that facilitates this

  • Do you own the property you'd write the call against? – JoeTaxpayer Jun 30 '14 at 14:38
  • @JoeTaxpayer assume I own the property for sake of discussion, but does it have to be about me? – CQM Jun 30 '14 at 14:43
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Options are sold on real estate all the time. If I see a house for sale and think for whatever reason I can find a buyer willing to pay a lot more or that something will occur to end the value up, I can offer the seller a deal where he would write an option. Say the house is listed for $100K, and the seller doesn't have to move immediately. I offer $5K for the right to buy it for $100K up to one year later. The seller keeps the $5K whether or not I buy it. As I suspected, a company announces the purchase of an office building nearby, and new workers will need housing, sending values up. I am able to sell the house for $125K the day I buy it for $100K.

You can sell options on property you own. That was why I commented. Not sure how could could ever arrange to sell an option if you don't already have the property or an existing option to buy it.

  • so the general idea is that all the options I write would expire worthless, or I forfeit the property when it gets exercised, I doubt there would be liquidity to buy-to-close the option when it decays in value over time (at a profit for me), thoughts? – CQM Jun 30 '14 at 15:47
  • I would say, these options are typically not written to allow the seller to buy them back early, although you can certainly try to write such contingencies in. These are all case by case, obviously, not standardized like stock options. – JoeTaxpayer Jun 30 '14 at 16:13
  • @CQM you're assuming options are being sold and bought for the sake of trading in options. While this works well with liquid securities, I can't see why this would work (at all!) for real estate (as opposed to securities backed by real estate - each house is one and unique and you cannot easily buy back a house after your option is exercised if you still want to own the asset, as opposed to publicly traded securities). – littleadv Jul 1 '14 at 4:43
  • @littleadv unless there was a service that was providing liquidity for giggles or whatever other reason, which is what the question was about. the more obvious challenges to liquidity were already mentioned, but yes doesn't look like its out there – CQM Jul 1 '14 at 21:56

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