Investing General Discussion
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Sanrith Descartes
Von Clippowicz
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You are saying two different things and I agree with one. Trading instruments you dont understand is a very poor decision. I also agree investors should be informed of risk. I have not used Robinhood but I can assure you the hoops you need to jump through with Fidelity are there. I had tongive a recorded approval on the phone just to trade extended hours.
As for options and Vegas games of chance. What is the difference between buying 1000 shares of HTZ amd 10 call options on HTZ?
Sanrith Descartes
Von Clippowicz
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I'm reposting this as its a real world example of using options (in this case covered calls) to make money off of volayile stocks. I am currently doing this right now with DAL. There is no margin or borrowed money. The covered term in covered call means I am using shares I already own as collateral in case the option gets exercised.
Furry
WoW Office
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Cost and time decay. You'll always have the shares, with the options you're betting on a move before x date. I'd say one could potentially be worthless, though you gave me an example where both are probably worthless, so no fair.
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Sanrith Descartes
Von Clippowicz
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Not necessarily true. I have never taken an option to expiry. While you are betting on a move, the date thing is relative. I have had options I flipped the same day and many times the same week I bought them. Depending on the delta and the move the profit can come in short order.
TheBeagle
JunkiesNetwork Donor
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In order to fully understand and educate myself about options and shit... Are we talking Freshman level textbook, Investipedia, or a couple semesters of night classes?
Usually I just jump into things and figure it out as I go. That's how I learned to play poker....sit down at a table, put some money down, and git gud. But I feel like getting out of the kiddie pool when it comes to investing means jumping directly into shark infested waters. If I did such a thing it wouldn't just be for financial reasons but mainly for the sake of learning something new and interesting and adding something new to the list of "shit that I can do on my own".
Usually I just jump into things and figure it out as I go. That's how I learned to play poker....sit down at a table, put some money down, and git gud. But I feel like getting out of the kiddie pool when it comes to investing means jumping directly into shark infested waters. If I did such a thing it wouldn't just be for financial reasons but mainly for the sake of learning something new and interesting and adding something new to the list of "shit that I can do on my own".
TJT
Mr. Poopybutthole
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Throwing away a few hundred bucks testing the waters on options is fine. But you'll pretty quickly learn that there are a lot more variables to options than just buying the stocks themselves.
Just one of many factors is open interest and spread. Suppose you buy an option on a stock at $0.05 a contract which will be $50. By tomorrow your option is worth three times that. However, since you bought an option on a stock with both a wide spread and low trading volume. your option may indeed be, "worth" that much but you have a very hard time selling it for the price even if that is in fact the market value.
Then everyday your option loses value to theta decay (the concept that every day an option ages and gets closer to its expiry date it thus loses value).
So you're unable to sell it or sell it at a loss because of the wide spread and low volume/open interest despite its supposed value.
It's a big reason why people who do buy and sell a lot of options (but do not sell covered options) focus on stocks with extremely high trading volumes as it makes it much easier to dump the option. No matter what your supposed can't go tits up fairly obscure stock option call might be on.
I would say that, to be successful at options day trading you need to be a lot more keen on learning fairly complex trading setups (Iron Butterfly, Iron Condor, Straddle, Strangle as examples) than if you just buy a stock at what you think is a good price and wait for it to improve.
Some things to read up on before jumping in.
- Learn exactly what strike prices on puts and calls are.
- Understand spread, open interest and relation to trading volume.
- Understand basic options terminology like In the Money, Out of the Money.
- Understand the Greeks, at least Theta as it is most likely to effect you if you're not buying and dropping an option in like the same day or couple of days.
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Indyocracy
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So what I have been mainly doing is instead of just buying a stock at the market price today, I have been selling put options on stocks I don't mind owning a round the market price. So far I have been assigned amc stock twice doing this but keep collecting premium by doing so. Once I have my shares I sell calls on the stock at a point where I am making a profit. So far it's been making me a few hundred more a month, not a lot but the contracts are only like $500 because and is cheap.
So I just sold 4 contracts at a $5.5 strike expiring next Friday for $50 in premium. If I am assigned the stock because it goes bearish I can sell calls at $5 and keep the new premium at a profit or just hold the stock until it comes back up. In the best case scenario I've sold puts multiple times so my cost basis is actually even lower so I have more profit\ tolerance for price movement.
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Sanrith Descartes
Von Clippowicz
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Everything above. I cant stress enough the value of liquidity not just in options but in stocks. Volume directly equates to bid/ask spreads. Trading in illiquid instruments means wide spreafs which means it can be difficult to exit a position when you want to. Its one reason trading after hours has inherent risk. The spreads are quite wide.
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Sanrith Descartes
Von Clippowicz
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This is sort of what I was saying about options not being "gambling". Use them to hedge risk. While it does inhibit maximum profit potential it also limits downside risk.
One of the big "musts" with options is to demystify them. Read about the greeks (the pricing variables like delta) and that lets you understand why an option is priced the way it is. Trading something where you dont understand the underlying reasons it is trading for X price is actually gambling.
The same concept applies with stocks themselves. Why is MSFT trading at $199? It means people are willing to pay 33x its current earnings. So with its 6$ EPS its currently trading at a multiple of 33.
This is the basic elements of investing i think people should look at. Understand the big three financial forms (balance sheet, cash flows and income statement). Its difficult to ask yourself if a company is worth 33x earnings (MSFT) without beijg able to read its financials.
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Quineloe
Ahn'Qiraj Raider
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be wirecard AG, the latest hot shit of investing in Germany *that guy* never shuts up about.
Try to offshore 2 billion Euros (1/4 total assets)
find someone in southeast Asia to hold your money for you
Realize you got scammed and your books are now off by that much.
have KPMG audit your books to "fix" the mistake.
Get told off by KPMG because you really dun goofed
Try to offshore 2 billion Euros (1/4 total assets)
find someone in southeast Asia to hold your money for you
Realize you got scammed and your books are now off by that much.
have KPMG audit your books to "fix" the mistake.
Get told off by KPMG because you really dun goofed
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Sanrith Descartes
Von Clippowicz
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Another small bit of info. Watch volume numbers of things like QQQ and the SPY. When you see a spike, look at the time and sales info. This can give you some ideas about what big money is thinking. Example at 10:03 the volume of the QQQ spiked over 1m shares in that minute. Look at the data and there was a block buy of 1,000,000 at 10:03:54 am. Thats a quarter of a billion dollar purchase. That was followed by 6 consecutive minutes of upward movement of the stock.
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Indyocracy
Stock Pals Participant
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Yea I have lost some profits because of the recent volitilty but I also keep securing gains so I try to just focus on the $50 for 500 spent weekly, 10% is 10%. I had to sit on aal for like a month waiting for it to be profitable when it went from like 14 to 10, but I just held on till I was able to sell for a profit. I guess it feels like gambling because I need to learn more about those fundementals cause my stock picking has been what felt like gambling because I am mainly picking stocks I like and can afford to cover the 100 shares so its smaller stuff.
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TJT
Mr. Poopybutthole
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While I do really like options as a thought exercise as I like math and complexity I don't often get into it much myself. It requires way more constant vigilance to be good at and I have a day job that is not finance related so it is just difficult. Maybe one day I'll say fuck it to working a day job and just do nothing but manage my investments. I've made $3.5k this year learning about options trading and that is just fine to me. That is a pittance compared to my actual portfolio so learning them I never actually risked anything than the $850 I started with when I set out to dabble in options trading.
It is really wild to learn about though. Even if you just read Wallstreetbets for amusement you'll learn quite a bit about how to succeed and fail at options. There are loads of people on yotube and blogs who make all of their money doing nothing, and I mean nothing, but buying and selling options on SPY using certain constraints. The guy in The Chart Guys youtube channel makes the majority of his income solely on In the Money options on SPY and he never holds an option for more than a few hours at a time under any circumstances.
Take it with a grain of salt and all but that guy is a professional trader and he does succeed at it.
It is really wild to learn about though. Even if you just read Wallstreetbets for amusement you'll learn quite a bit about how to succeed and fail at options. There are loads of people on yotube and blogs who make all of their money doing nothing, and I mean nothing, but buying and selling options on SPY using certain constraints. The guy in The Chart Guys youtube channel makes the majority of his income solely on In the Money options on SPY and he never holds an option for more than a few hours at a time under any circumstances.
Take it with a grain of salt and all but that guy is a professional trader and he does succeed at it.
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kegkilla
The Big Mod
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If you with small enough investments that you could chalk up a loss as an educational experience, I don't see any issues with that approach. I'd point out a few of the key things to keep in mind with options when starting out:
- Market volatility is a variable that directly impacts option price. This is logical since the more volatility in the market, the higher probability of big market swings that result in the stock price rising/dropping and the option getting in the money. The VIX index is generally used as a benchmark for market volatility. This also means that a settling market can crush the value of your options, and vice versa.
- Time until expiration is another variable to consider. Again, logical since the more time until expiration, the more time for the stock price to move into the money. If an option is out of the money and all other variables remain consistent, the option will lose value over time.
- The bid-ask spreads are usually pretty wide with options so you'll probably want to use a limit order to buy and sell rather than a market order. I would still recommend having stop loss orders in place though.
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Sanrith Descartes
Von Clippowicz
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Like everything else, there are different strategies to options trading and you should have a clear strategy before making a trade. For example you could be using the trade to try to capture a long position on the cheap (ie.. selling a put option on a stock you like at a discount 10 or even 20% below current; you get the premium and if it exercises you get a stock you want to own on the cheap) or you could be looking to make additional money on a long position you have (selling covered calls for the premium). My belief is the vast majority of traders are trading on the tine value. This is 90% of my trades. Analysis leads to a belief that a stock is going to move in a direction, so you trade an out of the money option position based on that direction. If it moves as anticipated, the value of the option increases/decreases and when it hits the desired profit percentage the option position is closed and the profit taken.
Trading out of the money options lowers the cost (and risk if you are wrong) and of course also lowers the delta (the amount the option price will move based on the stock price movement of the underlying stock). It can also allow you to purchase more option contracts for the same dollar amount
Trading out of the money options lowers the cost (and risk if you are wrong) and of course also lowers the delta (the amount the option price will move based on the stock price movement of the underlying stock). It can also allow you to purchase more option contracts for the same dollar amount
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Furry
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Simple noob intro to options.
Don't sell options until you really understand what you're doing. You can get assraped into space if you do it wrong.
Buying options is safer and where you should start. If you buy a call, generally you expect a stock to go up. If you buy a put, you expect it to go down. Use your knowledge of a company to make a decision on where its going and buy accordingly. If you get it right, you can make a lot of money on a small investment. If you get it wrong, you could lose all of the money invested.
Don't sell options until you really understand what you're doing. You can get assraped into space if you do it wrong.
Buying options is safer and where you should start. If you buy a call, generally you expect a stock to go up. If you buy a put, you expect it to go down. Use your knowledge of a company to make a decision on where its going and buy accordingly. If you get it right, you can make a lot of money on a small investment. If you get it wrong, you could lose all of the money invested.
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Sanrith Descartes
Von Clippowicz
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A decent platform's trade ticket will estimate your upside and downside risk for you (Fidelity's does). If you get nothing out of this thread in terms of options its this. Understand your downside risk! It's one reason I don't suggest anyone without a very high technical skill level trading on margin.
As long as you are trading covered calls and cash covered puts, your maximum downside risk is the amount of your investment. When you trade a cash covered put, your broker is parking that cash amount aside and your cant use it. It is collateral on your put option. Same with covered calls. Your stock is the collateral.
You "shouldn't" be trading (vs long term investing) positions with zero protection. Either a hedge trade to cover downside risk or some sort of trailing stop order. People much. Much smarter than me will tell you it is infinitely harder to know when to get out of a bad trade than it is to get in to a bad trade. Set a level (or better yet let the platforms calculate exit points on stop orders for you). So much better to eat a 10 or 15% loss than end up 50% down hoping it turns back the other way. This also ties in to what was said previously about liquidity and spreads. Stop orders don't help as much when in an illiquid instrument and the spreads are 2 or 3 dollars with a single contract. Dumping 3 or 5 contracts or hundreds of shares can elevator down as you try to dump it all on an unwilling market.
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Sanrith Descartes
Von Clippowicz
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Daniel Kahneman (Nobel prize in Econ) studied somewhere about 50 years of trade data for Wallstreet traders. His research showed on average traders were actually marginally worse than a coin flip. Choosing random letters sound about as good a strategy as flipping a coin.
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