Investing General Discussion

Sanrith Descartes

Sanrith Descartes

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Wingz said:
2 reasons:

1) I use webull so I don't know if I can actually do that but most importantly.

2) I don't really understand how those work so I don't do something I don't understand. Its really that simple. Buy/Sell call and put. Buy / sell stock, I get that.

Calendar spreads, debit spreads etc. To me that's fairly high concept stuff and is pretty complicated and so far I haven't seen something that really explains it really well to me so I just don't mess with them.

AKA:

Mental Health Reaction GIF by CBS
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One example:

Long Strangle
In a long strangle options strategy, the investor purchases a call and a put option with a different strike price: an out-of-the-money call option and an out-of-the-money put option simultaneously on the same underlying asset with the same expiration date. An investor who uses this strategy believes the underlying asset's price will experience a very large movement but is unsure of which direction the move will take.

For example, this strategy could be a wager on news from an earnings release for a company or an event related to a Food and Drug Administration (FDA) approval for a pharmaceutical stock. Losses are limited to the costs–the premium spent–for both options. Strangles will almost always be less expensive than straddles because the options purchased are out-of-the-money options.

1675300887440.png


In the P&L graph above, notice how the orange line illustrates the two break-even points. This strategy becomes profitable when the price of the stock, either up or down, has significant movement. The investor doesn't care which direction the stock moves, only it moves enough to place one option or the other in-the-money. It needs to be more than the total premium the investor paid for the structure.

There is a similar strategy called a long straddle instead of a long strangle. Instead of buying at two different out of the money strikes, you buy both at the money. A straddle costs more than the strangle (since its at the money) but the range of movement needed to profit is lower. The strangle costs less, but needs a bigger price movement to score.
 
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Wingz

Wingz

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Sanrith Descartes said:
One example:

Long Strangle
In a long strangle options strategy, the investor purchases a call and a put option with a different strike price: an out-of-the-money call option and an out-of-the-money put option simultaneously on the same underlying asset with the same expiration date. An investor who uses this strategy believes the underlying asset's price will experience a very large movement but is unsure of which direction the move will take.

For example, this strategy could be a wager on news from an earnings release for a company or an event related to a Food and Drug Administration (FDA) approval for a pharmaceutical stock. Losses are limited to the costs–the premium spent–for both options. Strangles will almost always be less expensive than straddles because the options purchased are out-of-the-money options.

View attachment 456487

In the P&L graph above, notice how the orange line illustrates the two break-even points. This strategy becomes profitable when the price of the stock, either up or down, has significant movement. The investor doesn't care which direction the stock moves, only it moves enough to place one option or the other in-the-money. It needs to be more than the total premium the investor paid for the structure.

There is a similar strategy called a long straddle instead of a long strangle. Instead of buying at two different out of the money strikes, you buy both at the money. A straddle costs more than the strangle (since its at the money) but the range of movement needed to profit is lower. The strangle costs less, but needs a bigger price movement to score.
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So in these examples you're just playing both sides. Ok that makes sense.
 
Sanrith Descartes

Sanrith Descartes

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Wingz said:
So in these examples you're just playing both sides. Ok that makes sense.
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In essence you win on a big move. Big being relative. Since you are paying $XX for each option, you will definitely lose on at least one leg (the direction it doesnt go). You maximum downside is limited to how much you spent to buy the options. You cant lose more than that. You need the stock to move in a direction far enough that the option you bought in that direction generates enough profit to cover the cost of buying both options and then some added alpha. The real bad news is the stock doesnt move a lot and you lose on both.

Example: Lets say you bought the SPY strangle expiring this Monday. You are betting on a violent swing come Friday one way or the other. Close price is $410. You buy the $420 call and the $400 put. Call is 61 cents and the put is 49 cents, so $1.10 a share or $110 per contract. If it moves up, the put is worthless. If it moves down, the call is worthless. if it moves sideways, both are worthless. Worst case, you can only lose a max of $110 per contract. No more.

1675303823356.png


No we look at the odds: 19% it lands above $420 and 14% it lands below $400. I am not saying this is a good bet, just using it as an example to explain. The farther it moves beyond either $420 or $400 the more alpha it racks up.

1675304014496.png


Thats the basic example of a long strangle. In a long saddle, you do the same thing only you buy the call and the put at the money (or $410). That is $6.81 a share or $681 per contract. Big difference. But you are at the money so you don't need nearly as much price movement to score a win. Risk vs reward.
 
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Wingz

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Sanrith Descartes said:
In essence you win on a big move. Big being relative. Since you are paying $XX for each option, you will definitely lose on at least one leg (the direction it doesnt go). You maximum downside is limited to how much you spent to buy the options. You cant lose more than that. You need the stock to move in a direction far enough that the option you bought in that direction generates enough profit to cover the cost of buying both options and then some added alpha. The real bad news is the stock doesnt move a lot and you lose on both.

Example: Lets say you bought the SPY strangle expiring this Monday. You are betting on a violent swing come Friday one way or the other. Close price is $410. You buy the $420 call and the $400 put. Call is 61 cents and the put is 49 cents, so $1.10 a share or $110 per contract. If it moves up, the put is worthless. If it moves down, the call is worthless. if it moves sideways, both are worthless. Worst case, you can only lose a max of $110 per contract. No more.

View attachment 456503

No we look at the odds: 19% it lands above $420 and 14% it lands below $400. I am not saying this is a good bet, just using it as an example to explain. The farther it moves beyond either $420 or $400 the more alpha it racks up.

View attachment 456504

Thats the basic example of a long strangle. In a long saddle, you do the same thing only you buy the call and the put at the money (or $410). That is $6.81 a share or $681 per contract. Big difference. But you are at the money so you don't need nearly as much price movement to score a win. Risk vs reward.
Click to expand...
Cool. I'll keep this in mind.
 
Sanrith Descartes

Sanrith Descartes

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Wingz said:
Cool. I'll keep this in mind.
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Keep in mind, the mechanics arent that hard to follow. The strategy, on the other hand, is complex and where the money is made and lost. Anyone can flip a coin.

This being said, with AAPL, GOOGL etc reporting tomorrow a big move is a higher probability that normal. Learn what the greeks are and how they will help you calculate the estimated price target you need for actual breakeven and where the profit points are. And start really small. Like 1 contract small.
 
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Sanrith Descartes

Sanrith Descartes

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The price target changes coming out for META are massive. Not $5 or $10 changes. More like $50 - $100 changes. Shows how worthless analysts are. They had left META for dead a few months with their lowball estimates and now they are shown how bad they are at their jobs.

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Mist

Mist

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I expect to see major profit taking across the board in the next 2 weeks, all of those estimates are way too optimistic.
 
Sanrith Descartes

Sanrith Descartes

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Mist said:
I expect to see major profit taking across the board in the next 2 weeks, all of those estimates are way too optimistic.
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They are 12 month targets. Granted I think analysts are worthless, but I can see $220 in 12 months.
 
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Sanrith Descartes

Sanrith Descartes

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GOOGL +7% ahead of earnings tonight on META sympathy. I "think" my portfolio goes positive today.
 
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Sanrith Descartes

Sanrith Descartes

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Trimmed a 3rd of my META position at $183. Sold the shares I had bought between $95 and $110 when I was dollar cost averaging. Cost basis was $106 so about a 75% profit. What I kept is slightly red (about -7% right now) based on the adjusted cost basis. Never be afraid to bank some profits when the time is right.
 
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Aldarion

Aldarion

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Since I only started investing in 2022, I hadnt gotten to see the euphoria stage before. its interesting.

to be clear, I'm not talking about my portfolio, but commenting by investors around the internet.
 
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