You seem like a decent fellow - I hate to die.
You axed Inigo? Terrible… terrible. I’m never going to clear my cache… I just can’t do it.
I used to trade options. The nerves…the nerves…I’ve made 100% in a week and lost that amount in the same time as well. At the end of three months, I was breaking even and I decided that it was time to quit this crazy game. I guess I just don’t have a well rehearsed system like Vertigo does but neither do I have the time and discipline to come up with one.
Right now, I do covered calls and I think it’s a great strategy. You make money when the stock goes up, you make money when the stock goes sideways, and you can even make money if the stock goes down a little. You can also limit your downside by buying a put as protection so a sudden meltdown in your stock won’t send you panicking.
Is it too risky?Put or call is not easy for me.
:[quote]If anybody would be interested, perhaps I can spend a little time writing up a little intro on basic options trading and the strategies that I use that have been working for me. Let me know. I don’t claim to be an expert by any stretch of the word, but I have been quite successful at it.
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I’d like to know.
I am interested in knowing the basic options trading though I am not going to buy in a short time.
I know there are some stuents in uni to do day trading.
Though they say it is only uni club resaerch. 
I read up on covered calls but I don’t understand how you can place a put on that - how can you sell the shares before the option expires? Aren’t you are still obligated to fulfill the option call?
Nice to see some trading related posts here recently. Personally only trying forex (demo no live crash and burn for me just yet 
)but its good to see some discussion about trading.
An option is just that, the option, but not the obligation. The obligation is upon the person at the other end writing the warrant to sell to you if you want it.
If it expires, its worthless
Tycoon, what I’m referring to (covered calls) involve selling options on shares that you already own. My question is if you place a put order on those shares to prevent losses beyond a certain point, in the event that the stock does drop in price and the put is executed, you would be unable to fulfill that option contract if the stock price happens to rise again to or above the option value.
I’m trying to visualize what you are saying. But from my understanding (very limited in this field), you would write your option to expire at the same time as the warrant (covered calls).
With covered calls, you own the stock and if it goes above a certain point, you may have to sell your shares. Effectively you gain and income by renting your shares out.
If the stock drops in value by more than what you rented them out for, you made a loss and you’re suggesting that by buying a put option, you can protect yourself.
I’m not quite sure what you mean by the stock dropping and the put being executed. You choose to exercise the put when you want. When you’ve decided that you’ve covered your loss. If you’re unsure whether it will go down further, you can wait… then if you buy it right towards the end (near the expiry), you know it won’t go down any further before your covered call also expires (in which case you get paid).
If you do decide to exercise the put earlier because you don’t think the stock can drop any further, and then it rises again, you’ve made money both ways.
and its not like you would be “unable” to exercise the put if the stock price rises again, it would just not make any money! Besides if it rises again, then you don’t need the put anyway as it was protecting your downside no?
Getting the put option is just a form of hedging right?
Personally I don’t really see the point of covered calls except that I think its useful to do with a stock you’ve owned for a while, you’ve got a good capital gain on it already, you don’t see any further significant price rises, you’d be happy to sell it, but comfortable also holding it longer.
If the stock price falls below the put strike price, you need not exercise it. You can hold on to the option until the very last day to determine if you want to exercise the option. It’s not automatic.
Correct, it’s just insurance.
Let’s take stock ABC that trades at $98. You sell a call option for $2 at a strike price of $100 that expires in a month. At the same time, you buy a put option for $1 at a strike price $95 that expires at the same time.
Let take a look at a few scenarios assuming you hold on to everything until the expiry date.
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Price of ABC is above $100. You no longer hold the stock and you must sell your stock at $100. The put option you bought expires worthless. You will make $3: +$2 from capital gain, +$2 from selling the call option, -$1 from buying the put option.
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Price of ABC is from $97-$100. You still hold the stock. The put option you bought expires worthless. Your gain is anywhere from $0 to $3. At $97, you lost $1 in capital gains, lost $1 in buying the put, but both are offset by the $2 you made by selling the option.
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Price of ABC is from $95-97. You still hold the stock. The put option you bought expires worthless. You lose anywhere from $0 to $2. At $95, you lost $3 in capital gains and an additional $1 in buying the put. However, you made $2 from selling the call option for a total loss of $2.
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Price of ABC is below $95. You would exercise your put option and sell the stock at $95, a loss of $3. You lost $1 from buying the put but gained $2 from selling the call option. Your total loss is limited to $2.
At month’s end, here’s a table of ABC’s stock price versus profit/loss:
Price Gain
$92 -$2
$93 -$2
$94 -$2
$95 -$2
$96 -$1
$97 $0
$98 +$1
$99 +$2
$100 +$3
$101 +$3
$102 +$3
$103 +$3
As you can see, your best case scenario is a gain $3 and your worst case scenario is a loss of $2. If the stock goes down a little (between $97-98), you can still make money.
This is a very conservative options strategy and is even more conservative than holding the stock alone. However, given the right stock, it can be quite profitable with limited downside risks. I usually don’t buy the put option because it limits my return. In the example above, if you didn’t buy the put option, your best case scenario becomes a gain of $4 but your downside risk becomes a lot bigger as there’s no protection against a stock tanking. That’s why you’d always want to hold on to a quality stock (but with some volatility) when playing with covered calls without buying the put option.
The picture is never really that black and white. With the right stocks, this play can be quite profitable. Not 100% profitable like buying options outright, but way above the broader market returns. With a covered call play, I always buy a stock that I wouldn’t mind holding on to anyway.
Nice posts. I also just do not understand margins. I know some very affluent traders who practice in the margins but I surmised early on that it was not for me.
Day Trading - Well, I guess it depends on how you define the trade. I watch the market and especially the 10, 50, 100, and 200 day moving average. Combine it with recent news and any generalized information for that particular market and I found that I can make some money. TCLN is a good example. Gone from the board now, I bought at a bit over 1.00 U.S. and had to sweet talk my broker to do it. He got me worried as I was buying and limited my investment to 2000 U.S. Over three days it climbed to 14.00 U.S. I sold at a bit over 10.00. He chastised himself for not partaking as I collected my check a few days later. Don’t get greedy. Day trading doesn’t mean that you have to sell at the end of the day. It does require nerves of steel and an the opportunity to watch the stock several times a day.
Much has been mentioned about Warren Buffet. Buffet approaches buys much the same as a person buying a company. Do the research carefully and remember, you actually are buying the company. Do it carefully with all the facts available at your command.
As an aside, and thanks to jdsmith (our forumosan) for some sound advice.
If you are married to a Taiwanese, remember that Taiwanese are not subject to capital gain in the U.S. and Taiwan does not tax capital gain.
Tax free income is always good.
Hi all - I haven’t forgotten about the little introduction to options trading post I said I would make. I’m in the process of writing it offline now. There is so much stuff to write about so it will probably still be a few days yet before I will post it. In addition to some basic stuff on buying call and put options, I’m also planning to write up some stuff about how to time the buy and sell when swing trading. Stay tuned…
Great vertigo. Can’t wait!