new record for Dow Jones

[VitaMan]

Sounds like a reply a 5 year old would make, not a man in his 60s.. Run along now.



You don't need to make up more stories about yourself. You are better off making up stories about election fraud, and making posts that only have links that contain malware.

[Tiny]

Originally Posted by dilbert firestorm

Dont you need to borrow funds for an option call?

You don't need to borrow to buy a call option.

You also don't need to borrow money if you sell a covered call.

Here's an example, that might help you understand what Vitaman's doing. You, Dilbert, own Exxon stock. The price is $69 per share. You sell March 18, 2022 calls to Vitaman at a 75 strike price. Vitaman pays you $7.80 per share for the options up front which you pocket. This is called a "covered" call, because you own the Exxon stock.

Come March 18, if the price of Exxon closes below $75, you walk away with the $7.80 premium and Vitaman is left with nothing. Sweet deal, huh?

On the other hand, say Iran blocks the straits of Hormuz and the price of Exxon Stock shoots up to $150 per share on March 18. Then you have to fork over your Exxon stock to Vitaman, and he has to pay you $75. Then Vitaman instantaneously turns around and sells the Exxon stock for $150. Basically he paid $7.80 premium for the option, and now he's going to pocket a profit of $75 per share ($150 - $75), less the $7.80. So Vitaman has a return of about 9:1 on his investment of $7.80 per share.

I've simplified things here by the way. Probably Vitaman will liquidate his call in the market before expiration date, booking a a hefty profit, instead of actually exercising the option. But maybe not.

Getting back to your question, if you sold a "naked call", that is, if you sold the Exxon call options but didn't own Exxon stock, then you'd have to maintain enough margin in your account to guarantee the broker and the clearing entity that you could buy the Exxon stock on March 18 to be able to deliver to Vitaman. And if you didn't have enough cash in your account to meet the margin, then I believe your broker would loan the money to you, using your stock positions as collateral, and charge you interest.

[Texas Contrarian]

Thanks, Tiny! Good explanation.

You beat me to it and saved me a few minutes of typing, as I would have made the same points. Except that you went a bit further and gave a clear and simple example.

If you don't mind, I might sort of plagiarize your post and offer it to a couple of friends who could possibly use the material in their blogs or Substack missives.

Because your post explains the key points in such concise fashion that even readers with law degrees and MBAs from Ivy League institutions can easily comprehend them!

.

[VitaMan]

That is a good explanation of what is possible.


Unfortunately, the posters here who asked the question how it is done likely will not read it, and may not understand it even if they do read it.


Then they will cry "Lies, lies lies." "It must be BULLSHIT."

[dilbert firestorm]

I do own exxon stock.

[Tiny]

Originally Posted by CaptainMidnight

Thanks, Tiny! Good explanation.

You beat me to it and saved me a few minutes of typing, as I would have made the same points. Except that you went a bit further and gave a clear and simple example.

If you don't mind, I might sort of plagiarize your post and offer it to a couple of friends who could possibly use the material in their blogs or Substack missives.

Because your post explains the key points in such concise fashion that even readers with law degrees and MBAs from Ivy League institutions can easily comprehend them!

.

Sure, have at it. I've always figured the ones making profits in options are the market makers and proprietary traders with armies of PhD's. In the words of James Simons, founder of Renaissance Capital, they're taking money from the lawyers and Ivy League MBA's. OK, actually what he really said was doctors and dentists, but same principle.

For people like us, I think there's money to be made when through research you've got an idea that something really good or bad is about to happen, for example an earnings surprise. That might have been Vitaman's edge. Or, obviously, the people who only buy options, who are more likely to be retail traders, can do well when there's a lot of volatility, like the last couple of years.

I have little experience with options. I've used options on futures to hedge commodity prices a couple of times. And I followed a friend into some trades last year when we'd sell SPAC shares short or sell calls and buy the warrants on the SPAC's. I gave an example earlier in this thread, one I didn't do, DWAC and DWACW, Donald Trump's SPAC.

The problems were that the cost to borrow the shares to sell short could go sky high, and the shares could be bought in. To try to sidestep those problems, we were also selling calls, or creating synthetic short positions by selling calls and buying puts. A call can still be exercised prior to expiration, but the probability is less than being bought in when you're short. And your cost of "borrowing" the shares is fixed -- you're not going to go from paying 2% a year to borrow shares one week to 500% the next.

I made money on the trades, but there were land mines. If the Reddit crowd on Wall Street Bets starts madly buying a SPAC, and ignores the warrant, you'll see the spread between the two go up. Your broker's likely to increase the margin percentage on your short or your call option because of the volatility, and the cost of borrowing the shares goes up as other arbitrage traders pile into your trade. So you may end up tempted to close out the position at the worst possible time.

[Texas Contrarian]

.

I was kidding! (In case anyone reading this thread didn't realize that.)

From what I understand, even the shrewdest prop traders have a great deal of trouble pulling off consistent successes in the options markets.

A long-time friend who has more recent experience and knows more about options markets than I do put it this way:

You might luck out and find an irrational mispricing somewhere that you believe is easily exploitable, but consider this. A few thousand hedge funds and operators of trading platforms scour markets 24/7 and look for every chance to arbitrage all sorts of markets. They employ tens of thousands of ambitious young analysts and traders with graduate degrees in mathematics, physics, computer science, and the engineering sciences who are constantly on the hunt for every little edge. (Everybody wants to be at least a junior varsity version of Simons's RenTech!)

Sometimes inexperienced speculators get lucky and hit a nice pop, as some of the Robinhood/WSB/Reddit crowd did about a year ago when they managed to catch a couple of big hedge funds in the painful pit of a short squeeze. Of course, a lot of these people began to think that all of this was just too easy. I mean, if you can make all this money trading on Robinhood, why work? (But then, many of them later got caught without a chair when the music stopped.)

These should be cautionary notes for anyone aspiring to trade his way from modest means to multimillionaire status by speculating with options. Not likely. No matter how "smart" you think you are.

.

[Texas Contrarian]

Originally Posted by CaptainMidnight

These should be cautionary notes for anyone aspiring to trade his way from modest means to multimillionaire status by speculating with options. Not likely. No matter how "smart" you think you are.

Lest one think the options market is a huge gaming table for people to enjoy, note that options can be used in a conservative manner to hedge or mitigate risks.

For instance, let's suppose that I am a long-term investor who does not trade often, preferring to load up when the market is fairly valued or undervalued, as it was during the first couple of years following the GFC. When the market is richly priced, as it has been in recent years, I might very much hesitate to sell since the capital gains tax rate is 23.8%.

So I can purchase a little "insurance" in the form of long-dated, deep out-of-the-money put options. Typically, I might annually spend about 0.2 percent of my unrealized capital gain, with the expectation that the overwhelming majority of the options will expire worthless. But the ones that are in-the-money prior to the expiration date pay off big-time.

(Note: The put options need not involve the stocks you own. The idea is to hedge against panicky selloffs and steep cliff-dives, so puts on any stock that would get killed in a bear market are top candidates.)

Think of it like this:

Let's say you own a building and want to lay off the risk of substantial or total loss due to fire or tornado. Thus you may pay something like 0.2 percent of the replacement cost of the building annually in order to insure a risk that you cannot afford to take, or at least would prefer not to take.

One sleeps better at night that way!

.

[Why_Yes_I_Do]

BTW: Great info in the options thingy. But, uhm, how you feeling about the markets at the moment, leastwise the the last 2-20 days anyway? Clearly Brandon and the Fed have a handle on it. Right? Well... first time to be right about anything for Brandon would be right about now...

[bambino]

❗️NASDAQ 100 Falls 0.8% - Heading for worst week in almost two years (Zero Hedge)

Subscribe to RT t.me/rtnews

[The_Waco_Kid]

well how 'bout that BRANDON stock market! tanking like the Titanic.


where is Mr Wizard? frantically selling off and buying gold and silver? making more savvy 10 bagger options trades to bolster his "independent wealth"?


so Mr Wizard ... think Brandon's big mouth about war in Ukraine being invertible did the market good .. or bad?


BAAHHHAAAA

[VitaMan]

It was a good week for me.. I bought put options on Netflix Thursday. I could have mentioned that trade idea to you, but you are so insistent on your market ignorance, and shouting BS, I didn't.


Sounds like you didn't do so well. And your friend ?
Well, not really much need to mention him.

[The_Waco_Kid]

Originally Posted by VitaMan

It was a good week for me.. I bought put options on Netflix Thursday. I could have mentioned that trade idea to you, but you are so insistent on your market ignorance, and shouting BS, I didn't.


Sounds like you didn't do so well. And your friend ?
Well, not really much need to mention him.

good for you. any reason you want to dump netflix from your portfolio?

i'm down at least 10 percent. maybe closer to 15. dropped nearly 55k overall in the last month and change of the "record Dow Jones".


bhahahhahaaaaa


i have about 25k sitting in a money market. the stock market took a correction today. time to BUY!!! bahhaaaa

so Mr Wizard .. if you had 25k in a money market account and wanted to say ... double that in a week .. what would you do?

inquiring posters want to know!


BAHHHAAA

[VitaMan]

IMHO, this is only a market for day traders for a while now.


Lots of international tit for tats going on, as you mention. US vs. Russia. China vs. US. Makes for good daily news. Of course the news on FED actions.



The only doubles for a while are going to be the double toe loops at the Winter Olympics. But since they are to be held at, of all places....China.....and China has a ban on US flights....maybe they won't even happen.


The US ban on China flights is to start Jan 30.
The Winter Olympics is to start Feb 04.

[The_Waco_Kid]

Originally Posted by VitaMan

IMHO, this is only a market for day traders for a while now.


Lots of international tit for tats going on, as you mention. US vs. Russia. China vs. US. Makes for good daily news. Of course the news on FED actions.



The only doubles for a while are going to be the double toe loops at the Winter Olympics. But since they are to be held at, of all places....China.....and China has a ban on US flights....maybe they won't even happen.


The US ban on China flights is to start Jan 30.
The Winter Olympics is to start Feb 04.

well since you want to play .. i'll remove my intentional week double down which to ur credit you hedged because that was a hard requirement

so without any unfair short term "wizard" stuff ...


what would you do with 25K?


the TWK Foundation wants to know