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 ...
- 75.8k
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 '...
- 75.8k
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 ...
- 15.1k
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).
...
- 131k
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 ...
- 24k
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 ...
- 75.8k
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 ...
- 29.4k
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 ...
6
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, ...
- 75.8k
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 ...
- 131k
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 + ...
- 75.8k
4
votes
Accepted
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 ...
- 156
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 = ...
- 6,400
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 ...
- 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 ...
- 49k
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 ...
- 75.8k
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 ...
- 29.4k
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://...
- 75.8k
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 ...
- 131k
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 ...
- 75.8k
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 ...
- 75.8k
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 ...
- 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 ...
- 131k
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 ...
- 794
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 ...
- 131k
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, ...
- 131k
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 ...
- 75.8k
3
votes
Put Option Payoff Replication (Dynamic Hedging)
This is basic binary tree modelling which works for puts and calls. What you don't show is how to get Cu and Cd - the price of the call in the "up" and "down" underlying price cases. If you know how ...
- 131k
3
votes
What fundamental value do Options give the economy?
Your question is like asking:
What economic value do ETFs and mutual funds give to the economy? After all, they're made up of stocks?
Like ETFs and mutual funds, options are just another type of ...
- 75.8k
3
votes
How to buy a contract for S&P 500 index?
You can buy shares of exchange traded funds and sell covered calls on those funds. Look at SPY, VOO, & IVV as some common examples.
- 32.7k
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