Time to learn more...options (Page 1 of 5)
Posted: 2/5/2025 9:05:31 AM EDT
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I know nothing about this: Want to learn more about investing/trading, besides just buying shares of funds, etf, stocks..etc. I started watching some YT vids on how it works, seems interesting, looks like it's legalized gambling. I'm not gonna drop any cash anytime soon, just wanna learn. Feel free to suggest links to watch or read...I'm not a book guy, but happy to read online. My day job has me online all day with 3 monitors, so I have some time to read and get paid for it  |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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@The_Master_Shake From the RKLB thread: Options levels seems to differ a bit from broker to broker, yours should have a FAQ page where they explain their tiers. As I recall with Fidelity: Level one allows you to buy contracts and sell covered contracts (cash secured puts and covered calls) Level two usually adds more advanced strategies like spreads, strangles, ect and (Fidelity anyway) required enabling margin. Level three gets into riskier stuff like selling naked options. |
Now fellate me, as I eat this expensive ham.
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Originally Posted By Procat: @The_Master_Shake From the RKLB thread: Options levels seems to differ a bit from broker to broker, yours should have a FAQ page where they explain their tiers. As I recall with Fidelity: Level one allows you to buy contracts and sell covered contracts (cash secured puts and covered calls) Level two usually adds more advanced strategies like spreads, strangles, ect and (Fidelity anyway) required enabling margin. Level three gets into riskier stuff like selling naked options. Appreciate the response! I read a couple of the quick reads defining terms they send you when you get approved. Still trying to figure things out 
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Look, yes, I have banged HUNDREDS of broads. INTERNATIONALLY. But know this - I wrap my rascal, TWO TIMES, cuz I like it to be joyless and without sensation. It's a way of punishing supermodels.
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Probably a bit advanced for this discussion but figured I’d throw up a real life example of a call debit spread I just bought. I’ll preface by saying I generally just sell options and only buy them when I have extremely high conviction. Stock is $HOOD currently trading at $56.20 They report Q4 earnings Wednesday, I suspect they will beat estimates. Leg 1: Bought to open $56 call expiring this Friday for $3.49 Leg 2: Sold to open $57 call expiring this Friday for $3.00 -Nets to a $0.49 per share debit. -If it closes Friday above $57 I’ll collect the $1 difference between the strikes doubling my money. -If it closes Friday below $56 I lose my $0.49 -$56.49 is my break even (long call strike + contract cost) ETA: Stock beat estimates and took off as expected. Spreads printed the $1/share return. |
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Originally Posted By Procat: Probably a bit advanced for this discussion but figured I’d throw up a real life example of a call debit spread I just bought. I’ll preface by saying I generally just sell options and only buy them when I have extremely high conviction. Stock is $HOOD currently trading at $56.20 They report Q4 earnings Wednesday, I suspect they will beat estimates. Leg 1: Bought to open $56 call expiring this Friday for $3.49 Leg 2: Sold to open $57 call expiring this Friday for $3.00 -Nets to a $0.49 per share debit. -If it closes Friday above $57 I’ll collect the $1 difference between the strikes doubling my money. -If it closes Friday below $56 I lose my $0.49 -$56.49 is my break even (long call strike + contract cost) Thanks for the example, it helps. |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Originally Posted By rtlm: Thanks for the example, it helps. He describes a bullish call spread. You can also use a bullish put spread, (credit spread). Sell a $56 put for $3.65 and buy a $57 put for $3.20, netting a $0.45 credit to your account. If it expires worthless on Friday, you keep all the money. The most you can lose is $1 - credit received (1-0.45=0.55). Ignoring commissions, of course. Not better, not worse, just different ways of doing it. |
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Originally Posted By grendelbane: He describes a bullish call spread. You can also use a bullish put spread, (credit spread). Sell a $56 put for $3.65 and buy a $57 put for $3.20, netting a $0.45 credit to your account. If it expires worthless on Friday, you keep all the money. The most you can lose is $1 - credit received (1-0.45=0.55). Ignoring commissions, of course. Not better, not worse, just different ways of doing it. Originally Posted By grendelbane: Originally Posted By rtlm: Thanks for the example, it helps. He describes a bullish call spread. You can also use a bullish put spread, (credit spread). Sell a $56 put for $3.65 and buy a $57 put for $3.20, netting a $0.45 credit to your account. If it expires worthless on Friday, you keep all the money. The most you can lose is $1 - credit received (1-0.45=0.55). Ignoring commissions, of course. Not better, not worse, just different ways of doing it. Great info. Gonna be a while before I try one, but The info is good. Some good youtube vids as well. Charles Schwab network provides examples during the day as well. |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Originally Posted By rtlm: Gonna be a while before I try one. Definitely. As I said that example is a bit advanced for an intro to options discussion. While I feel it’s a bit exaggerated, Falarak’s statement about blowing up your account is always a possibility if you go all in with WSB style YOLO trades. I sold options for over a year before I ever bought a contract. Learned a lot about how contract prices fluctuate with changes in the underlying share price, macro events, passage of time (theta decay). Once you get familiar with looking at options chains you can also quickly identify mis-pricing. In the above example the $56/57 spread was actually a few cents cheaper when I bought it than had I gone with $57/58 despite being more likely to print by $1. ETA: paper trading at first could be a useful tool to see potential outcomes before you put real money on the line |
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Originally Posted By FALARAK: Trading options is a great way to turn $10,000 into $20,000. Then turn $20,000 into $500. Did Scottrade send you my account statements from around 2005???!!! I had about 10k invested, ripped it up to about 50k. Withdrew the money to go buy an Infiniti w/cash. Decided to not buy the car and put the money back in my account. I should have bought the car, at least I would have had something to look at less than a year later. |
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For anyone interested in learning options this video is well worth the 2hr watch. Assumes you already know the basic mechanics of them (but does recap) and dives into delta, theta, IV, ect.  OPTIONS 201 | When & How to Pick An Option to Buy or Sell |
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Originally Posted By Procat: For anyone interested in learning options this video is well worth the 2hr watch. Assumes you already know the basic mechanics of them (but does recap) and dives into delta, theta, IV, ect.  https://www.youtube.com/watch?v=x5VLZfKrDUkThanks |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Originally Posted By Procat: For anyone interested in learning options this video is well worth the 2hr watch. Assumes you already know the basic mechanics of them (but does recap) and dives into delta, theta, IV, ect. https://www.youtube.com/watch?v=x5VLZfKrDUkIn the beginning of this video, he mentions a very basic 101 video he did a month earlier. So I decided to start there, watching it now. Appreciate the info!! Link to basic 101  THE BASICS OF OPTIONS | Buying & Selling Puts and Calls |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Originally Posted By Procat: For anyone interested in learning options this video is well worth the 2hr watch. Assumes you already know the basic mechanics of them (but does recap) and dives into delta, theta, IV, ect. https://www.youtube.com/watch?v=x5VLZfKrDUkRe: my question regarding buying to close in the "What stocks are you buying?" thread, I was trying to figure out why you wouldn't maximize your return by just letting the options expire, thought it might be to eliminate risk when dealing with volatile stocks. I have the youtube video you linked above bookmarked and plan on watching it. Thanks for the info and the link. |
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Originally Posted By jsippel: Re: my question regarding buying to close in the "What stocks are you buying?" thread, I was trying to figure out why you wouldn't maximize your return by just letting the options expire, thought it might be to eliminate risk when dealing with volatile stocks. I have the youtube video you linked above bookmarked and plan on watching it. Thanks for the info and the link. In the case of buying to close a put vs letting it expire worthless I do this out of habit generally so I can redeploy the funds that are set aside securing the contract. Since contracts (other than daily) close Friday night, your funds aren’t going to free up until Monday morning if you wait until expiration. If you have a different put play in mind you can usually sell it for a higher price Friday vs Monday due to the theta (time value of money). Paying $0.01 per share to end one contract might get you $0.10 more on the next one. LUNR was a special deal because they had earnings this week. I got paid $0.52 for the $9 put, that’s better than 5% in a week. The high premium was just due to fear they would tank on earnings and when they didn’t it immediately went to $0.01 (effectively worthless). Where it really gets interesting is longer dated contracts on stocks that don’t have a catalyst event like earnings during the term. To give a generic example say a stock is $20, I sell a $18 put 60 days out for $1. If a week into the trade the stock runs up to $25 the put could easily drop to $0.20. At that point I could hold out for the 5% gain in 60 days or buy to close and take a 4% gain in a week. As a general rule if an option I’ve sold has recognized 80%+ of it’s profit and there’s still a week or more on the clock I’ll just buy it to be done. |
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Originally Posted By jsippel: ......I was trying to figure out why you wouldn't maximize your return by just letting the options expire, thought it might be to eliminate risk when dealing with volatile stocks. .... Letting the options expire takes time(and involves risk since the stock might move against you). The money/shares you have tied up in a position might also be able to generate more profit elsewhere than it costs to close that option position. |
| Does trading in options yield a better return than simply buying/selling the underlying stock in your estimation(s)? Seem like you are betting on the stock price moving in a specific direction over a short time frame. We know stocks go up and down all the time with news/sentiment, but if I am bullish on a stock actually holding it gives a longer time frame for my thesis to play out. If I am bearish I can simply sell the stock and redirect my capital. Or is the benefit of options simply the leverage they provide in not tying up the full cost of the (100) shares in the contract? Curious if anyone has actually compared returns on options vs actually owning a stock. |
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Originally Posted By jsippel: Does trading in options yield a better return than simply buying/selling the underlying stock in your estimation(s)? ..........Curious if anyone has actually compared returns on options vs actually owning a stock. Completely depends on how the stock performs, what your options strategy is, and how well you can execute it. Options are not magic, their big benefit is the leverage they provide. You still have to predict future performance of the underlying asset in order to generate significant profits, but you can make smaller profits on volatility when the underlying stock is relatively flat. There are countless ETFs that generate revenue by trading options, you could compare an ETF that uses the strategy you are interested in against the underlying asset the ETF trades options on... XYLD is an ETF that is commonly talked about here. It makes money by selling sp500 covered calls. Is it worth buying XYLD rather than a sp500 fund to hold long-term? Absolutely not(and never will be). Is it worth it to sell covered calls on sp500 funds that you are already holding long-term? Maybe - if you can crack the code, spend the man-hours, and tolerate the risk. Attached File |
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Originally Posted By jsippel: Does trading in options yield a better return than simply buying/selling the underlying stock in your estimation(s)? Seem like you are betting on the stock price moving in a specific direction over a short time frame. We know stocks go up and down all the time with news/sentiment, but if I am bullish on a stock actually holding it gives a longer time frame for my thesis to play out. If I am bearish I can simply sell the stock and redirect my capital. Or is the benefit of options simply the leverage they provide in not tying up the full cost of the (100) shares in the contract? Curious if anyone has actually compared returns on options vs actually owning a stock. It’s important to separate that buying options is a totally different animal than selling options. Selling options shines in flat markets as an income generating strategy. As far as being better, that depends. In the LUNR example I gave in yes I made 5%+ in a week selling the put but had I just bought the shares at that time I would be up 30%+/- now. Earnings had a lot to do with it and is why lots of people won’t sell contracts around earnings unless they have high conviction on what’s going to be reported. Buying options isn’t something I do often and even then I usually create a spread by simultaneously selling a contract at another strike price. (See the $HOOD call debit spread example I gave earlier in this post). It limits potential profit but it also brings the cost down a lot. In that example I doubled my investment in a week when the stock only moved a few bucks so playing it with options was definitely the way to go. The risk is that had $HOOD tanked that week I would have lost it all on my options and if I had bought shares instead (even if they hypothetically tanked) they are worth more now. |
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@Morgan321 I always got a kick out of the S&P 500 covered call ETFs and how they’re often cited as a reason why selling covered calls isn’t worth doing. Making money on options (buying or selling) generally depends on volatility so it makes no sense to trade them on an underlying designed to limit volatility. In general tech stocks are where all the action is. |
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Originally Posted By Procat: I always got a kick out of the S&P 500 covered call ETFs and how they’re often cited as a reason why selling covered calls isn’t worth doing. Seems like a good example since lots of people already have an index fund in their IRA, selling covered calls is an easy way to learn about one side of options trading, and it's relatively low risk. |
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Couple cash secured put examples from today $HOOD sold $80 puts for this Friday for $0.50 while the stock was trading at $83. Thought process is that I want to add some shares and I’ll get them for $79.50 (80-0.50) vs hitting the buy button at $83. If I don’t get assigned I’ll make $50 per contract for tying some money up for a few days. $BBAI sold $4 puts for August 15 for $0.47 while the stock was at $4.80. Again I’d like to add some shares and $3.53 (4-0.47) is more appealing than buying at $4.80. If I don’t get assigned I’ll make over 11% in under 2 months ($0.47 / $4 =11.75%) These trades were made in Fidelity who still pays money market rates on cash set aside as collateral so the funds involved are still earning whatever SPAXX is paying in addition to the premiums collected. EDIT $HOOD cash secured puts dropped to near worthlessness on the last day when it was obvious they wouldn’t be assigned. Rolled out 1 week for $1.20 per share credit. Edit #2 Closed 2nd HOOD puts for $0.03, premium wasn’t worth it to roll. Closed BBAI puts for $0.15 after recognizing over 2/3 of my anticipated profit in one week. |
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Originally Posted By Procat: Couple cash secured put examples from today $HOOD sold $80 puts for this Friday for $0.50 while the stock was trading at $83. Thought process is that I want to add some shares and I’ll get them for $79.50 (80-0.50) vs hitting the buy button at $83. If I don’t get assigned I’ll make $50 per contract for tying some money up for a few days. $BBAI sold $4 puts for August 15 for $0.47 while the stock was at $4.80. Again I’d like to add some shares and $3.53 (4-0.47) is more appealing than buying at $4.80. If I don’t get assigned I’ll make over 11% in under 2 months ($0.47 / $4 =11.75%) These trades were made in Fidelity who still pays money market rates on cash set aside as collateral so the funds involved are still earning whatever SPAXX is paying in addition to the premiums collected. Thank you very much! |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Figured I’d give this post a bump with a real life example w/ the math from today. I’d like to keep it going because questions come up and it’s easier to refer people here. -$RKLB was trading at $43.41 -Sold (5) cash secured puts for 10/17/25 at the $39 strike for $3.17 -Total credit was $1581.63 If unassigned this ends up being a 8.1% gain in 60 +/- days (credit divided by collateral) If assigned I end up saving $7.57 per share on the purchase rather than just hitting the buy button instead. ($35.84 cost basis (strike minus credit received) subtracted from $43.41 market price) |
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Originally Posted By Procat: Figured I’d give this post a bump with a real life example w/ the math from today. I’d like to keep it going because questions come up and it’s easier to refer people here. -$RKLB was trading at $43.41 -Sold (5) cash secured puts for 10/17/25 at the $39 strike for $3.17 -Total credit was $1581.63 If unassigned this ends up being a 8.1% gain in 60 +/- days (credit divided by collateral) If assigned I end up saving $7.57 per share on the purchase rather than just hitting the buy button instead. ($35.84 cost basis (strike minus credit received) subtracted from $43.41 market price) Great example. Thanks |
"I got this. We'll skip the dicks" DK-Prof 12/7/21
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Originally Posted By Procat: -$RKLB was trading at $43.41 -Sold (5) cash secured puts for 10/17/25 at the $39 strike for $3.17 -Total credit was $1581.63 If assigned I end up saving $7.57 per share on the purchase rather than just hitting the buy button instead. ($35.84 cost basis (strike minus credit received) subtracted from $43.41 market price) So another way of saying it is, if executed, you only come out ahead if the price is above $35.83 ($39 strike minus $3.17 cost). Correct? I gave up selling covered calls, Here is one month of my experimentation with 600 shares of FBTC. It worked but I wasn't looking to get rid of my bitcoin so I played it very safe. As a result I could maybe generate a couple percent annually, but for me the return wasn't worth the effort required. You can tell when the bitcoin price was helping me and when it was hurting me. I only just noticed that the gains are long term - is that because I held most of the FBTC shares for over a year? Attached File |
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Originally Posted By Morgan321: Help me out here.... in layman's terms you agreed to buy at $39. Nobody will sell at $39 unless the price is below $39. So another way of saying it is, if executed, you only come out ahead if the price is above $35.83 ($39 strike minus $3.17 cost). Correct? Correct. The cost basis is also the break even point. Worth noting the discrepancy of a penny or two is rounding / $0.65 per contract fee / slippage on order fill / ect. Technically though the stock could drop to $20 and I’d still be ahead compared to buying at $43.xx. Options contracts have their own unique tickers and holding an underlying stock shouldn’t impact its tax treatment. Not sure why yours all say long term unless the contracts were longer than a year. It’s possible if it’s in a tax advantaged account it just labeled them all as such because it doesn’t matter. In a Fidelity taxable account contracts are labeled short and long term just like stocks. Long term really only comes into play with LEAPS. |
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Originally Posted By Procat: Figured I’d give this post a bump with a real life example w/ the math from today. I’d like to keep it going because questions come up and it’s easier to refer people here. -$RKLB was trading at $43.41 -Sold (5) cash secured puts for 10/17/25 at the $39 strike for $3.17 -Total credit was $1581.63 If unassigned this ends up being a 8.1% gain in 60 +/- days (credit divided by collateral) If assigned I end up saving $7.57 per share on the purchase rather than just hitting the buy button instead. ($35.84 cost basis (strike minus credit received) subtracted from $43.41 market price) Update: After posting this I ended up selling (9) more $RKLB puts for a total of (14). As of today they’re down to $1.39 with over a month left. If they get below $0.50 before the end of September I’ll probably go ahead and close them and move on. Sold (10) $LUNR $8 cash secured puts today for 10/17. Filled at $0.45 for a net credit of $443.27. Stock was at $8.40 at the time. Without breaking out a calculator that’s either a 5%+ gain in less than 6 weeks (if unassigned) or a 10% discount on the shares compared to today’s price (if assigned). ETA 9/15 Closed 4 of the 14 RKLB $39 cash secured puts for $0.50 |
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Another strategy I’m growing fond of is long dated call debit spreads. I sold one on $SOFI today so I thought I’d put up the numbers. -January 15 2027 expiration (493 DTE) -stock was at $26 +/- -10 contracts (1000 shares) -bought $25 call while selling $40 -limit price of $4.20 (per share) -total debit of $4213.46 -breakeven is $29.21 -256% gain if it expires fully in the money Attached File Should the stock fall during the contract I’ll look into buying to close the $40 short calls so the $25 long calls can run if / when it rebounds. Not too worried about it because as a financial company parabolic runs are rare compared to tech. Logic behind this trade is that SOFI is growing impressively and has recently become eligible for S&P 500 inclusion. The expiration date allows for 5 quarterly rebalances of the index for them to get added. |
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One negative thing about call debit spreads, and I found the perfect example, is that even if the contract goes into the money big time you generally have to wait for expiration to get your money. No selling early for big gains like you could if you just held a long call. This HOOD $45 / $47 call debit spread expires in 48 hours. The stock is over $100 so it’d have to fall over 50% in that time to not print. 7 contracts representing 100 shares each means $1400 will hit my account this weekend. Why is it only worth $560 this close to expiration? It’s liquidation value is so low because to close I’d have to sell the $45 call and buy the $47 taking the crappier of the bid / ask spread on each. Add to that since the strikes are so far from the stock value there is basically no liquidity. Note I didn’t actually buy this spread, Fidelity just paired the contracts when it rearranged a bunch of options for margin efficiency. Attached File |
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Originally Posted By Procat: One negative thing about call debit spreads, and I found the perfect example, is that even if the contract goes into the money big time you generally have to wait for expiration to get your money. No selling early for big gains like you could if you just held a long call. |
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@Morgan321 I think you misunderstood. I can close the contract whenever, you just hit the green close button at the bottom of the above screenshot to start the trade. The issue, and I should have been more clear about it, is that you’re not going to get anything close to your full profit if you close it early. Even if profit is all but set in stone. Comparing a spread to selling a put, if I sell a put and the stock doubles it’s not uncommon for the contract to drop to $0.05 and I can buy to close early recognizing nearly all of my profit early. Same holds true for selling a call if the stock tanks. |
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Originally Posted By Procat: I think you misunderstood. I can close the contract whenever, you just hit the green close button at the bottom of the above screenshot to start the trade. The issue, and I should have been more clear about it, is that you’re not going to get anything close to your full profit if you close it early. What is your definition of "close"? To me that means buying/selling to close the call/put - is that also your definition? When I say execute I mean to exercise the options at their strike price before their expiration date - that requires talking to a human(at least at fidelity). I see you mention margin - does that mean you don't own any shares? If so, can they execute the put "first" to get your shares, and then immediately execute the call to sell them? This is a bit beyond my knowledge level - I've still only sold covered calls very conservatively. |
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You’re correct that closing a spread isn’t actually executing the option, it’s buying to close the short contract while selling to close the long one. (As I described it). I made the assumption based on the fact that there is pretty much zero reason to ever exercise an options contract early. The one exception might be to own the stock on the day of record for a dividend but it’d have to be a hell of a payout to justify it. The value of an option is a mix of theta (time value of money), extrinsic value (market expectations) and the intrinsic value (strikes distance from the current value of the stock). If you bought a call, the stock skyrocketed and you wanted out early you would be better off selling the contract vs exercising it. By selling the contract you collect the theta, intrinsic and extrinsic value. If you exercise the contract you’re just getting the intrinsic value. I’ve sold thousands of contracts and have only had one instance where the buyer exercised it early. Back testing the math of the transaction it didn’t make sense for them to do that but it’s not like they give you an explanation. In the call debit spread example I don’t own any actual shares. The call I’ve sold (obligation) is backed up by the call I own at the lower price. When the $HOOD example above settles it will show up in my transactions that I bought 700 shares for $45 and sold 700 shares for $47. The issue of margin is just that Fidelity makes you enable it to get approved for level 2 options. That covers multi leg contracts like spreads. If you have multiple spreads on the same ticker Fidelity has a habit of rearranging how they’re paired to make one a huge winner at the expense of the other(s) so they can increase your borrowing power. |
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Here’s an example of closing an option early vs exercising it so you can visualize it. Note: $BMNR was trading at $60.80 when this screenshot was taken. Attached File If you owned a $50 call for October 17th and wanted out early what are your options? You could exercise it early and take delivery of 100 shares for $5000. Based on the current price you’d be up $1080 on the position if you wanted to sell. Instead if you sold the contract you’d receive $1430. Even if you actually wanted to own the shares you would be better off selling the contract and just buying the shares on the open market. $46.50 cost basis ($60.80-$14.30) vs $50 if you exercised the contract. |
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Originally Posted By Procat: I made the assumption based on the fact that there is pretty much zero reason to ever exercise an options contract early. Am I missing something? Your logic implies that waiting to execute will always result in larger profit and that is obviously not true. |