KB
Diamond Member
- Nov 8, 1999
- 5,406
- 389
- 126
Damn thats a sobering graph. I have some money in a mutual fund, not NRVEX, but a T Rowe Price fund which I used for comparison and it looks I missed out on a lot of money by having it in a mutual fund. I think its time to see if I can get my Roth IRA funds to invest in ETFs. Thanks for the heads up.
- Sep 29, 2004
- 18,656
- 68
- 91
Been lucky with SD so far. Made a 10% gain and sold. It dropped 10% and I bought back in for $7.31 I think. So I am up 10% right now. This time though, I will be holding for a while.
Let me see if I understand this correctly.
QQQQ is trading at 57.67, Mar 19 58 call option costs 1.00.
I buy 2000 shares at 115,340, and I sell 20 options, giving me an immediate 2000 profit.
Possibilities are:
1. Mar 19 comes and goes without hitting 58 so nothing else happens
2. Option is exercised, I have to sell at 58 giving 660 more profit, I miss out on any potential gains above 58.
Don't use Google Finance, you need to calculate total return on invested capital.
V(T) + D(T0 through T) + CG (T0 through T)/ V(T0)
to annualize the return raise to the (1/years) power.
If you are taking cash dividends it is simply Current Value + Dividends + Capital Gains / Value you invested.
Last edited:
That is correct, you are selling time value and volatility i.e. playing the banker in the transaction. The option buyer is playing speculator or trying to cover something else without investing a lot of capital.
Option writer is long theta or time value decay (if nothing happens the option writer makes money), short volatility or vega (more volatile the option the more the call is worth against you) option purchaser is long volatility, short time value decay (if the option does not go up they lose the time value discount).
Delta/Gamma/Charm are more used for pricing of non-public or for hedge ratios which you can learn later should you choose.
Last edited:
So, isn't making ~2% return per month, multiplied by 12 months in a year, a pretty good rate of return?
I understand you would need quite a bit of startup money so commissions don't cut too much out of the profit, but this seems like a safe way to make a decent profit.
Yes, option writing often works well. However remember what you are doing, selling vol.
If the asset becomes more volatile either up or down you lose. i.e. if it moves up a lot you missed the upside, if it moves down a lot you accepted a full downside deviation.
Look at the return of the CBOE BXM index compared to the S & P 500 though. Writing covered calls is generally considered a more conservative strategy than holding the outright.
If the asset becomes more volatile either up or down you lose. i.e. if it moves up a lot you missed the upside, if it moves down a lot you accepted a full downside deviation.
Look at the return of the CBOE BXM index compared to the S & P 500 though. Writing covered calls is generally considered a more conservative strategy than holding the outright.
Last edited:
dullard
Elite Member
- May 21, 2001
- 26,138
- 4,797
- 126
It can be a safe way. But it isn't necessarilly a decent profit. Selling calls means that you do well when the market is flat. But, the key is during even the last decade when the market didn't really move very far, it was rarely very flat short term. So, be aware of the four possibilities (you only listed two).
Possibility 1: The market goes up bigger than you thought. In your case, you made risked $115,340 and made a tiny $2660. You risked 100% to get a 2.25% return. Not a really good bet (would you make that bet in Las Vegas?) This very thing just happened to a friend of mine. We both went in big this summer. He made a few percent selling calls. I stayed in and got a 30% return.
Possibility 2: The market goes up a bit. You risked 100% to get a 2.25% return. Positive for you, but pretty dismal in the grand scheme of things.
Possibility 3: The market is flat. You risked $115,340, and got $2000 every month repeatedly. That can add up quite big.
Possibility 4: The market falls more than you thought. You put in $115,340, made $2000 a few times, and now your stocks are worth $80,000. You lost $30,000.
Last edited:
- Sep 29, 2004
- 18,656
- 68
- 91
I know someone that does this stuff with options. He seems to do well but in a diversified account, he also looses on occasion. He does all this with calls and puts though. And I think he said it also involves shorting the underlying stock. It's a way of leveraging up big time.
What was described in this thread is just a covered call strategy.
There are three scenarios really. I'll take the two extremes to illustrate and the 3rd "normal scenario":
Company is over-valued: You buy at $10.77. You sell the call for $1. The stock corrects and is now worth $8. You made that $1 up front (5% gain) but the stock itself is now down 20%. For a net loss of 15%. Consider the scenarios going forward (doing another call just to have the stock called away)
Company is under-valued: You buy at $10.77. You sell the call for $1. You make a 5% gain. But the stock runs up to $15. The stock gets called away for $10. You made 33 cents on the transaction which is a 3% gain or so while missing out on a 40% run up in stock price.
Stock is fairly valued: Either of the above scenarios could occur. Hopefully neither and you make your 2% a month .... while it lasts.
The true winner is the intermediary (CBOE).
Not to preach, but all that value investors do is sit on cash till a very good opportunity comes along. It only takes one good idea a year to make 20%+ a year. My current good idea is LEE. Anyone can do it. The hard part is discipline and being able to sit on ones hands and do nothing. But, the decision to do nothing is still a decision. I have one other very good idea but it is to thinly traded to mention here.
EDIT: I see everyone just said the same thing, just a bit differently.
What was described in this thread is just a covered call strategy.
There are three scenarios really. I'll take the two extremes to illustrate and the 3rd "normal scenario":
Company is over-valued: You buy at $10.77. You sell the call for $1. The stock corrects and is now worth $8. You made that $1 up front (5% gain) but the stock itself is now down 20%. For a net loss of 15%. Consider the scenarios going forward (doing another call just to have the stock called away)
Company is under-valued: You buy at $10.77. You sell the call for $1. You make a 5% gain. But the stock runs up to $15. The stock gets called away for $10. You made 33 cents on the transaction which is a 3% gain or so while missing out on a 40% run up in stock price.
Stock is fairly valued: Either of the above scenarios could occur. Hopefully neither and you make your 2% a month .... while it lasts.
The true winner is the intermediary (CBOE).
Not to preach, but all that value investors do is sit on cash till a very good opportunity comes along. It only takes one good idea a year to make 20%+ a year. My current good idea is LEE. Anyone can do it. The hard part is discipline and being able to sit on ones hands and do nothing. But, the decision to do nothing is still a decision. I have one other very good idea but it is to thinly traded to mention here.
EDIT: I see everyone just said the same thing, just a bit differently.
Last edited:
So what? You still hold the shares, and can continue writing options. As long as you do not need to sell the stock anytime soon to cover bills just hold it. And if you need the money for bills short term you shouldn't have it invested in stocks in the first place.
Ooooh I think I see. If it goes down, to continue the process you sell an option for less than your initial buyin price, and it is exercised you could lose more than you gained.
Last edited:
- Sep 29, 2004
- 18,656
- 68
- 91
EDIT: Ooops. I just read your last sentence.
Let's say QQQQ drops to 45. You are down 20% or so. Do you do the same options strategy and do covered calsl at the 46 strike for $1?
If you do that, and QQQQ runs back up to $55, your stock will get called away at $45.
So, you paid $55. Collected $2 in premiums. And sold at $45. That is a loss of $8.
The person that simply bought at $55 and held down to $45 and watched it go back to $55 broke even. The thing is, the person that held to $45 could have doubled up. So when it whent back up to $55, they actually made $5 (bought half at $55 and half at $45 for a $50 cost basis). The user of covered calls can do little more than watch.
It's not easy money. Covered calls limit your upside potential while providing 100% downside risk. I used to only do this with grossly over-valued issues that I did not want to sell. A bit wiser these days, I would simply sell an over-valued stock.
Last edited:
- Sep 29, 2004
- 18,656
- 68
- 91
Picked up some Furniture Brands International, Inc. (Public, NYSE:FBN) today for $3.79.
Reasnably good balance sheet (current assets greater than total liabilities, total liabilities relative to FCF is acceptable). While earnings are negative for about 3 yeas now, FCF has been positive for those years. To top it off, insiders have been buying. Well, it's been a while since insiders were buying but they were. They have a good portfolio of brand names. I recognized about 33% of them. Management has done a good job managing the economic downturn.
Annual report did not raise any flags. It was a bit more promotional than I'd like but I have no complaints.
It is near the 52 week low. I think this is paying 50 cents for a dollar (for reasons of valuation, not dueness).
UPDATE: OK, so I bought it ... and by the time it closed today I was up about 9%. Scratching head .... Oh, this puts me at about the 10% cash level right now.
Reasnably good balance sheet (current assets greater than total liabilities, total liabilities relative to FCF is acceptable). While earnings are negative for about 3 yeas now, FCF has been positive for those years. To top it off, insiders have been buying. Well, it's been a while since insiders were buying but they were. They have a good portfolio of brand names. I recognized about 33% of them. Management has done a good job managing the economic downturn.
Annual report did not raise any flags. It was a bit more promotional than I'd like but I have no complaints.
It is near the 52 week low. I think this is paying 50 cents for a dollar (for reasons of valuation, not dueness).
UPDATE: OK, so I bought it ... and by the time it closed today I was up about 9%. Scratching head .... Oh, this puts me at about the 10% cash level right now.
Last edited:
It's been a fun and profitable way to dip my toe in the option market. Admittedly, I've been pretty fortunate with the market prices when my options were close to expiry. Funny thing is less than an hour after I posted the price began its ramp up to well above $10. Looks like this will be the last month I'll have these shares as they'll likely get called away.
What do people think of these. I've been watching for a while (and obviously should have bought earlier) now I feel like they are due for a pullback but still tempt me:
NTAP
EMC
STEC
ARMH
NTAP
EMC
STEC
ARMH
FelixDeCat
Lifer
- Aug 4, 2000
- 31,116
- 2,727
- 126
Buy them back and sell the $10s again. A little less profit, but you get some downside protection. Although you still risk an overnight surprise at anytime.
Good luck.
For the options newbie - how do you do this?
First, gain a complete understanding of all the ways you can get burned. The past 20 or so posts give a good overview. Second, start small!
Azurik
Platinum Member
- Jan 23, 2002
- 2,206
- 12
- 81
I am invested in IDCC since the $20's. It has a story similiar to RMBS (intellectual property company trying to protect and license). It has the look and feel of the early years of QCOM, and has valuable assets in the smartphone industry. I am pleasantly surprised how it has traded the past few months. A decision from court is expected pretty soon (and Nokia and others could sign before, like Acer did), my guess is anytime now through the end of next month (which is soon in court terms). It shot above $55 now due to people placing bets on this and its value compared to share price at the moment.
I have my ways
Just tell me when and I'll meet up with you when you're in my city!
Bought into RMBS starting 4/27/2009. It was $11.59. Continued to buy more RMBS up to around $16 or so.
Sold half the shares 4/23/2010 @ ~$25
Sold the other half 9/27/2010 @ $20.60
Thanks again Azurik, I made some good $$$ from RMBS
You're welcome. Glad I could help some of the folks here out. I still believe in RMBS and they're due a decision from the CAFC that will affect their company massively, we also have a anti-trust trial that keeps getting pushed back. The new judge assigned has given it a hard trial date though later this year. If I learned anything from this, is that money can be made, but also extend any estimates in time frame you may have. Courts move extremely slow is making things right.
Last edited:
TRENDING THREADS
-
Discussion Zen 5 Speculation (EPYC Turin and Strix Point/Granite Ridge - Ryzen 9000)- Started by DisEnchantment
- Replies: 25K
-
Discussion Intel Meteor, Arrow, Lunar & Panther Lakes + WCL Discussion Threads
- Started by Tigerick
- Replies: 23K
-
Discussion Intel current and future Lakes & Rapids thread- Started by TheF34RChannel
- Replies: 23K
-
-
Facebook
Twitter