Sanrith Descartes
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Investing General Discussion
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Sanrith Descartes
Veteran of a thousand threadban wars
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Arden
Blackwing Lair Raider
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I've been thinking the exact same thing. Still sitting on these inverse etfs.
Edit: Did it. Finally sold my inverse positions and took profit. Be advised, the market is almost certainly going to crash next week to remind me how bad I am at timing things
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Aldarion
Egg Nazi
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thanks for taking one for the team! I'm still holding some, trying to ease my way out. well find out next week if I regret it
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Blazin
Creative Title
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Fidelity added some great statistics to performance page that touch on things I've talked about in regards to performance of a portfolio needing to weigh volatility and risk compared to market. These numbers for me are strong validation in my method, not only outperforming the market but doing while realizing less volatility than the market by a sizable margin.
This has been a tough year but is right in my wheelhouse, these are my alpha gaining years vs the boring melt up years where S&P is more likely to outperform. Despite the years of building and refining method it's always a little daunting that changing markets make it that you are never done. Always having to be able to differentiate between short term setbacks vs changing market dynamics that require fundamental change to execution vs staying the course.
This has been a tough year but is right in my wheelhouse, these are my alpha gaining years vs the boring melt up years where S&P is more likely to outperform. Despite the years of building and refining method it's always a little daunting that changing markets make it that you are never done. Always having to be able to differentiate between short term setbacks vs changing market dynamics that require fundamental change to execution vs staying the course.
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Sludig
Golden Baronet of the Realm
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I'm not picky someone take my money for a fair cut, I know I will never trust any broker ever I just find by Google. Or I'll just sit in the SPY, just feel like I'm missing out but too dumb and busy to get deep. If i was playing with bigger numbers than 1-200k I could justify it as a side job.
Sanrith Descartes
Veteran of a thousand threadban wars
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Just my take, but 80% of the investing stuff is really pretty basic. Even simple options are just that, simple. I allocate less than 5% of my portfolios to non-buy&hold stuff.
Running a buy/write on something like T is less than $1900 investment. Buy 100 shares and write the covered call. You won't get rich doing it, but it's designed to make you some extra alpha while holding the shares. If you buy at $19 and get called at $21 a few months later you made 10-15% . Otherwise you don't get called and you just keep churning dividends and option premiums. The downside risk? The stock you buy goes down. Its why you focus on old guard, cash cow, value stocks that don't have a lot of price movements and their price discovery has decades of data.
Writing puts in the current market is not as simple. The possibility of getting assigned is significant even if you do the research because a 3% down day on the market drags everything down with it. Honestly, starting with covered calls is the first step.
Sanrith Descartes
Veteran of a thousand threadban wars
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Ok. Start here for the basics and terminology so I don't repeat it all here.
Everything Options
Options can be a powerful tool to add to your investing/trading toolkit. They can dramatically increase your risk or they can mitigate it and everything in between. This thread is for discussing options plays, options education and questions. I have been trading options for about 20 yrs now...
After reading that come back here.
No margin is involved. You are selling call options on shares you already own.
For this example I am using T.
You buy 100 T at $18.50 (today's price).
You then turn around and write (sell) a call option on those 100 shares. For this example we will pick the $19 strike expiring on Jan 20. You receive approximately 20 cents (x100).
This option is a contract that says you will sell your T shares to the call buyer at $19 per share on Jan 20th. Even if the price is above $19.
This stock goes ex-div around Jan 6 so you as the owner of the stock will get that 28 cents. So if the stock ends up at $19 or above after the 20th you will get:
$19 per share (the call option strike price).
20 cents (the call option premium)
28 cents (the stock dividend)
Total of $19.48 on a $18.50 investment. That is 5.3% return for a month or annualized to a 64% return.
If the stock doesn't end at $19 or above then they won't buy the stock and you keep the 20 premium and do it all over again. Rinse and repeat adjusting the strike price with each each rinse.
Downsides. You buy the stock and it drops a buck or two. Your initial investment is in the red but it's a paper loss and it doesn't impact you from continuing the covered calls. However, if the stock drops too much you might not be able to sell covered calls at a strike above your cost basis. You are taking on risk if you sell calls on a strike below your cost basis.
This is not a get rich quick scheme. It is probably the exact opposite. It is a slow drip of profit. The stocks we look at for this pay a solid dividend which you then supplement with call option premium. This is not the strategy employed during a hot bull market. But it is good in a sideways/down market because you are betting the stock price doesn't rise much. If it does go up and you have to sell your stock, then you are still making money. This just limits the amount you can make. If it goes to $20 and you have to sell at $19, well it will sort of suck, but you focus on what you made not what you didn't make.
This seems like small change and it is. But this is the numbers on a single contract. Most people don't use single contracts. In the example above, what if you had 10 contracts? Instead of making $98 for a month you make $980. Start small and learn the game.
There is a ton more to learn once you understand the basics (the math of the Greeks). But that is another discussion.
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OU Ariakas
Diet Dr. Pepper Enjoyer
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Ok. Start here for the basics and terminology so I don't repeat it all here.
Everything Options
Options can be a powerful tool to add to your investing/trading toolkit. They can dramatically increase your risk or they can mitigate it and everything in between. This thread is for discussing options plays, options education and questions. I have been trading options for about 20 yrs now...www.firesofheaven.org
After reading that come back here.
No margin is involved. You are selling call options on shares you already own.
For this example I am using T.
You buy 100 T at $18.50 (today's price).
You then turn around and write (sell) a call option on those 100 shares. For this example we will pick the $19 strike expiring on Jan 20. You receive approximately 20 cents (x100).
This option is a contract that says you will sell your T shares to the call buyer at $19 per share on Jan 20th. Even if the price is above $19.
This stock goes ex-div around Jan 6 so you as the owner of the stock will get that 28 cents. So if the stock ends up at $19 or above after the 20th you will get:
$19 per share (the call option strike price).
20 cents (the call option premium)
28 cents (the stock dividend)
Total of $19.48 on a $18.50 investment. That is 5.3% return for a month or annualized to a 64% return.
If the stock doesn't end at $19 or above then they won't buy the stock and you keep the 20 premium and do it all over again. Rinse and repeat adjusting the strike price with each each rinse.
Downsides. You buy the stock and it drops a buck or two. Your initial investment is in the red but it's a paper loss and it doesn't impact you from continuing the covered calls. However, if the stock drops too much you might not be able to sell covered calls at a strike above your cost basis. You are taking on risk if you sell calls on a strike below your cost basis.
This is not a get rich quick scheme. It is probably the exact opposite. It is a slow drip of profit. The stocks we look at for this pay a solid dividend which you then supplement with call option premium. This is not the strategy employed during a hot bull market. But it is good in a sideways/down market because you are betting the stock price doesn't rise much. If it does go up and you have to sell your stock, then you are still making money. This just limits the amount you can make. If it goes to $20 and you have to sell at $19, well it will sort of suck, but you focus on what you made not what you didn't make.
This seems like small change and it is. But this is the numbers on a single contract. Most people don't use single contracts. In the example above, what if you had 10 contracts? Instead of making $98 for a month you make $980. Start small and learn the game.
There is a ton more to learn once you understand the basics (the math of the Greeks). But that is another discussion.
Just to make sure I follow, in your example above where the price doesn't hit 19 and you keep the stock you make the .28 dividend and keep the .20 strike per share meaning each $18.50 share made you .48 or 2.59% in a single month and you still own the stock?
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Fogel
Mr. Poopybutthole
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Correct, your shares are only called if it closes above the strike price on the expiration date. If it stays under 19 you keep the shares and the premium from the option contract
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Sanrith Descartes
Veteran of a thousand threadban wars
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Yes. Exclude the dividend for a money as that is just the mechanics of owning a dividend stock.
With options, the buyer is purchasing the right to either buy your stock at a set price (the strike) or sell you their stock at a set price (also the strike). This option premium is paid to the option seller for the right to engage the contract. If the strike isn't profitable the buy won't exercise but the premium is already paid.
So the example is a bit skewed because of the dividend which pays quarterly. With T as an example if you can average 15 cent option premium each month for a year and not be called (meaning the stock price never exceeded the strike at expiry each month) then at the end of the year you still own your stock, you made 1.80 per share of stock and you made 1.11 in dividends per share. So 2.91 a share over twelve months on a stock you paid 18.50 for.
As I stated before, the real risk is this. You buy the stock at 18.50 and over the course of the month the stock drop to 16.50 and now there is almost no premium offered on a call for your shares at 18.50 or above. At that point you might have to wait for the stock price to begin moving back up before writing another call. Reason being is you take on the risk of a loss by writing a call at 17.50 or 18 because if the stock does move back higher you can end up being forced to see your stock below the price you paid for it. So in this case you just sit on the stock for a bit and continue making the 7% dividend.
Covered calls is a patience game.
Edit: I forgot to add that you aren't forced to wait for the contract to expire in a month. If the stock price moves lower the cost of your contract you sold will also move lower. It is quite common for people selling options to close out early as the price deteriorates. So if I got paid 20 cents and two weeks later the market had a 3% down day and I can buy a contract to replace the one I sold for 3 or 4 cents I do it to eliminate any unseen risk.
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Mist
Eeyore Enthusiast
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So why do all of this instead of just, say, buying a bunch of JEPI shares?
Or should I just buy a bunch of JEPI shares AND do this with them?
Sanrith Descartes
Veteran of a thousand threadban wars
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I like JEPI a lot. It is in my Mom's portfolio. JEPI you sit and hold to generate dividends. Stocks like T, KO, VZ, CSCO, you can also hold for the dividends but also add extra return with the calls.
Ps: "all of this" is about 30 seconds to a minute to look at the option chain and put the ticket in. Its not exactly time consuming.
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Sanrith Descartes
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