35 votes

How do I bet that a stock price will not move?

There are several option positions based on non movement of the stock: Sell a straddle (short the same strike put and call). Since both options are naked, you have open ended risk beyond the ...
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  • 73.7k
24 votes

Closing Shorted Positions via Short Ladder Attacks

My guess is that some Redditor or YouTuber concocted the strategy of a 'short ladder attack' to convince people to hold their long positions. Somewhere on Reddit there's an explanation that in a '...
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  • 73.7k
16 votes
Accepted

Why would someone want to sell call options?

You appear to be thinking of option writers as if they were individuals with small, nondiversified, holdings and a particular view on what the underlying is going to do. This is not the best way to ...
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  • 14.9k
14 votes

Why would someone want to sell call options?

I do this often with shares that I own - mostly as a learning/experience-building exercise, since I don't own enough individual stocks to make me rich (and don't risk enough to make me broke). ...
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  • 114k
11 votes
Accepted

Why naked call writing is risky compare to Covered call?

If the buyer exercises your option, you will have to give him the stock. If you already own the stock, the worst that can happen is you have to give him your stock, thus losing the money you spend to ...
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  • 23.8k
10 votes

Why this strategy with options and zero risk is not possible?

In terms of the risk graphs, your thought process is correct. If you combine a Short Butterfly with a Long Straddle, you end up with the risk graph of the green line. Unfortunately, because options ...
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  • 73.7k
9 votes
Accepted

How do I replicate a shorted stock and protective call option using options only?

Your replication is valid but unnecessarily complex (incurring extra trading costs). You only need a long put with a strike of $105. short-selling a stock should be approximately equivalent to buying ...
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  • 28.6k
7 votes

Why would someone want to sell call options?

I have an example of a trade I made some time ago. Stock price - $7.10 $7.50 call option 16 months out $2. By entering the position as a covered call, I was out of pocket $5.10, and if the stock ...
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5 votes
Accepted

Is a naked put really that risky

So, yes, you may be having the inevitable epiphany where you realize that options can synthetically replicate the same risk profile of owning stock outright. Allowing you to manipulate risk and ...
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  • 20.1k
5 votes

Naked calls and buying the stock later

Has anyone done this before? I'm sure someone has, but it doesn't completely remove any price risk. Suppose you buy it at 10 and it drops to 5? Then you've lost 5 on the stock and have no realized ...
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  • 114k
5 votes

How do I replicate a shorted stock and protective call option using options only?

There are 6 basic synthetic positions relating to combinations of put options, call options and their underlying stock in accordance to the synthetic triangle: Synthetic Long Stock = Long Call + ...
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  • 73.7k
5 votes
Accepted

What's to stop me from selling Iron Condors one day before expiration?

Some brokers present the midpoint as current price and that is a misrepresentation. I doubt that you can achieve a 1:1 R/R ratio if you are using the respective bid and ask prices. Be that as it may, ...
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  • 73.7k
4 votes

Shorting versus selling to hedge risk

The point of short-selling as a separate instrument is that you can you do it when you can't sell the underlying asset... usually because you don't actually own any of it and in fact believe that it ...
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4 votes
Accepted

Value of a call option spread

On expiry, with the underlying share price at $46, we have : the $45 call has an intrinsic value $1 which equates to $100 = 100 x $1.00 the $40 call has an intrinsic value $6 which equates to $600 = ...
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  • 6,337
4 votes
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What is a call spread and how does it work?

A bullish (or 'long') call spread is actually two separate option trades. The A/B notation is, respectively, the strike price of each trade. The first 'leg' of the strategy, corresponding to B, is ...
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4 votes

Why would someone want to sell call options?

"Covered calls", that is where the writer owns the underlying security, aren't the only type of calls one can write. Writing "uncovered calls," wherein one does NOT own the underlying, are a way to ...
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  • 380
4 votes
Accepted

Writing OTM puts and calls with strike prices beyond reasonable

If Apple is trading at $200 and you sell a Call with a strike price of $400, the contract would be way out of the money and worth maybe a penny per share. The person is buying the right to buy 100 ...
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  • 48.5k
4 votes
Accepted

Risk of selling stock cash secured puts and covered calls

Your analysis is correct other than a conclusion of it being easy money. The first problem I see is the 7-8% premium per week. If you're evaluating an ITM option then you have to calculate return ...
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  • 73.7k
4 votes
Accepted

What fundamental value do Options give the economy?

Options allow placing bets to hedge or speculate on nonlinear risks. They can be viewed as a type of insurance market. For example, protective puts are useful because preventing the possibility of ...
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  • 28.6k
4 votes

How to buy a contract for S&P 500 index?

The SPDR® S&P 500 ETF Trust (symbol SPY) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. https://...
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  • 73.7k
4 votes

Trying to get my head around how options work

You bought an out of the money put, meaning that if the stock had stayed at $215, your put would be worthless at expiry. (why exercise and sell the stock for $195 when you can sell it for $215 on the ...
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  • 114k
4 votes

How could I calculate the probability of getting wiped out?

I'd say that you ran a mildly smart option strategy because: You weren't chasing naked premium (the long leg prevented disaster) Your time frame was very short (two weeks) so theta decay was high ...
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  • 73.7k
4 votes
Accepted

For an individual brokerage account user, what is the cheapest way to take a short position in a stock?

Traditional margin is 150% of the short proceeds (brokers can require more) but the proceeds are used against the 150% so effectively, the margin requirement is 50% (cash or marginable securities). A ...
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  • 73.7k
3 votes
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Difference between naked put, covered put, protective put

Naked put This is the same thing as an "uncovered put" You are the writer of the put (seller) and do not have a short position in the stock-- this means that if the buyer of the put uses the option, ...
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  • 663
3 votes

Why would someone want to sell call options?

I'll provide another example: I bought AMD stock in Sept 2018 for an average of $33.03/share and never sold them. Today is 9/19/2019 and the price right now is $30.90/share. so basically 1 year of ...
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  • 31
3 votes

Stock options: payoff diagrams assume European style exercising

It is very rarely optimal to exercise an American option before expiry. Even if the stock goes close to 0, the market value of the options would likely still be slightly higher than the intrinsic ...
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  • 114k
3 votes
Accepted

Stock options: payoff diagrams assume European style exercising

Actually you can't lose more than what the diagram shows, even with American options, and these diagrams apply to both types. If the underlying stock gets to let's say $35 before expiration and your ...
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  • 774
3 votes

Inverted strangle

Let's look at the three payoff zones: If the stock goes above $55, then you have to sell it to the call holder for $45 for a gain of $1 ($5 loss on the stock + $6 gain in premium). If the stock is ...
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  • 114k
3 votes

Options: Trying to close a naked call position after the underlying drops in value

What if no one is selling $200, Dec 21, $FB calls. Everyone has a price - the bid/ask spread might be very wide but if there is an ask then someone is willing to sell. If you put in a market order, ...
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  • 114k
3 votes

does naked call option assignment result in stock borrowing fees?

When assignment occurs, you are notified that you are short the stock as of Tuesday morning. Buying the stock to cover on Tuesday will not result in a borrow fee. Of greater concern is the ...
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