Random Option plays on Market Update stock plays

[PuppBaby]

I see a lot of you commentating on SCC and SCSP, are you all doing this daily? Like SCSP today and next 2 days it runs up so just buy at back at lower price point + make profits.

I've only done SCSP to own, I usually let it just go to expiry. Been buying them 2 weeks out. Am I doing it wrong?

[Yodean]

I see a lot of you commentating on SCC and SCSP, are you all doing this daily? Like SCSP today and next 2 days it runs up so just buy at back at lower price point + make profits.

I've only done SCSP to own, I usually let it just go to expiry. Been buying them 2 weeks out. Am I doing it wrong?

Like the answer to most financial (and non-financial) questions, the answer is, "it depends."

I'm Wheeling daily, but I take what the market gives me - I don't force trades when the risk-reward asymmetry doesn't favour entering the trades.

In general, if you're profitable, you're doing well. Then it's just a matter of refining your tactics, and getting better with the nuances.

With a two-week expiration window, in general, you've got exponential theta decay working strongly in your favour, so letting trades run to expiry is prolly fine, especially if you don't mind owning the stock if you get assigned.

But you could potentially make more premiums (with less work) by extending the expiry period to the 4 to 6 week zone, or so - the more you extend your expiry period, the more sh*it can happen to your trade during that time, so taking profits and closing Wheel trades become more important.

While it's true that cumulatively you make more profits with shorter time expiration periods when added together vs. longer expiration ones, you must also consider the cases when you close a longer expiration trade early for a good profit vs. the shorter expiration ones - e.g. you collect a larger premium for a longer expiration trade, close it early profitably, and enter another one; this may beat a bunch of short expiration trade that expire.

I think Wheeling is really an art, more than a science.

[jlhooter]

Like some TI'ers here I am SCCing but don't want my shares to be taken from me. Based on a predicted drop starting Sep/Oct, I am Wheeling, but for the most part attempting to capture premium. Once I sell, the goal is to buy back at a lower premium and make ~65% of the sale (e.g., sell XYZ Call for $1.00 and buy back ~ $0.35). The goal would be to roll the position and do another SCC, but my ability to roll MIGHT be limited at some point since my initial sells have time premiums starting at Jan to Jun 2023. To lessen the 'pain' of having shares called, I pick a strike and a premium (with a delta: 0.15 to 0.3; for those who care about delta) such that I would get ~45% gain on the called security; I also shoot for premiums in the $5+ range which tends to force me to start at long time premiums (make it worth the play with a focus on SCCing for pure premium and of course reduced cost basis).
My thoughts are
- with the rally, the securities are doing well lately (AAPL, AMZN, etc.), so hitting my strike is a bit of a concern, but not so much because I can pick strikes with high premiums that minimize the risk of getting called
- the rally quickly causes my premiums to shoot up, so rolling is not so much an option because of the number of future plays that are limited; hence limiting my ability to roll with a credit; this is why I do plays that have high return if called (~45%)
- if I don't get called and the rally loses steam prices decline, then my ability to make my ~65% of the initial premium becomes more of a reality
- if prices drop, I will start to BUY puts on these and similar securities AND aggressively SCC where SCC premiums would help cover the cost of buying puts (I may or may not always buy puts depending on the play but will SCC with a focus of driving down my cost basis and less on getting pure premium)

I appreciate your comments or questions and what am I doing and would like to hear how I could improve.

[nicolas]

Here's an example of selling a Put on a down day, then buying a Call with less than half the time premium.

On Friday, INTC gapped down 10%. So, I wrote a Jan 2024 27.5 Put for $2.5. Then, I bought the Jan 2023 45 Call for $0.6.
Would I be happy getting INTC at $25.6? Yes.
I have a target to buy back the Put below $1.9, effectively giving me the call for free (GTC order $1.75)
Mental target for the Call: $1.2 (+100%), hard target (GTC order) $1.8 (+200%)
Target should be hit when INTC fills the gap to 40-41.

As I'm writing this, the Call is up 60% on a nice rebound of the stock.

[SOL]

Here's an example of selling a Put on a down day, then buying a Call with less than half the time premium.

On Friday, INTC gapped down 10%. So, I wrote a Jan 2024 27.5 Put for $2.5. Then, I bought the Jan 2023 45 Call for $0.6.
Would I be happy getting INTC at $25.6? Yes.
I have a target to buy back the Put below $1.9, effectively giving me the call for free (GTC order $1.75)
Mental target for the Call: $1.2 (+100%), hard target (GTC order) $1.8 (+200%)
Target should be hit when INTC fills the gap to 40-41.

As I'm writing this, the Call is up 60% on a nice rebound of the stock.

That was a smart play. Using the sell-off to sell a put. By default, the premiums spike more than they should. Determining targets in advance help remove the noise and indecision that plague many option traders gripped by the Loss-Greed Cycle. Holding both losers and winners forever. In other words they push for too much and end up with nothing

[LoriPrecisely]

Here's an example of selling a Put on a down day, then buying a Call with less than half the time premium.

On Friday, INTC gapped down 10%. So, I wrote a Jan 2024 27.5 Put for $2.5. Then, I bought the Jan 2023 45 Call for $0.6.
Would I be happy getting INTC at $25.6? Yes.
I have a target to buy back the Put below $1.9, effectively giving me the call for free (GTC order $1.75)
Mental target for the Call: $1.2 (+100%), hard target (GTC order) $1.8 (+200%)
Target should be hit when INTC fills the gap to 40-41.

As I'm writing this, the Call is up 60% on a nice rebound of the stock.

That was a smart play. Using the sell-off to sell a put. By default, the premiums spike more than they should. Determining targets in advance help remove the noise and indecision that plague many option traders gripped by the Loss-Greed Cycle. Holding both losers and winners forever. In other words they push for too much and end up with nothing

You said you would like to own the stock at 25.60.
I am a little puzzled as to why you chose an expiration so far out.
If you want to own the stock, why not chose something closer?

I like that you have already made 60% though, that is good.
And, I really agree about choosing targets.
I need to do that.

[nicolas]

You said you would like to own the stock at 25.60.
I am a little puzzled as to why you chose an expiration so far out.
If you want to own the stock, why not chose something closer?

I like that you have already made 60% though, that is good.
And, I really agree about choosing targets.
I need to do that.

I don't want to own. The sooner I can close the short put with a profit, the better. The trade is all about getting the call for free thanks to the put, and profiting from the call rising in value.
I started with answering that question as it's the #1 rule: only sell puts on stocks you wouldn't mind owning at that price. Taking care of the downside (the worst-case scenario) before looking at the upside.

[LoriPrecisely]

You said you would like to own the stock at 25.60.
I am a little puzzled as to why you chose an expiration so far out.
If you want to own the stock, why not chose something closer?

I like that you have already made 60% though, that is good.
And, I really agree about choosing targets.
I need to do that.

I don't want to own. The sooner I can close the short put with a profit, the better. The trade is all about getting the call for free thanks to the put, and profiting from the call rising in value.
I started with answering that question as it's the #1 rule: only sell puts on stocks you wouldn't mind owning at that price. Taking care of the downside (the worst-case scenario) before looking at the upside.

I understand.
Does the stock have to double in value in order for the Call to double in value?

[harryg]

Does the stock have to double in value in order for the Call to double in value?

No. Options are leveraged.

Leverage works both ways.

https://www.merrilledge.com/investment- ... erage-risk

[SOL]

You said you would like to own the stock at 25.60.
I am a little puzzled as to why you chose an expiration so far out.
If you want to own the stock, why not chose something closer?

I like that you have already made 60% though, that is good.
And, I really agree about choosing targets.
I need to do that.

I don't want to own. The sooner I can close the short put with a profit, the better. The trade is all about getting the call for free thanks to the put, and profiting from the call rising in value.
I started with answering that question as it's the #1 rule: only sell puts on stocks you wouldn't mind owning at that price. Taking care of the downside (the worst-case scenario) before looking at the upside.

I understand.
Does the stock have to double in value in order for the Call to double in value?

If the stock doubles in value, the call, depending on your strike, should 10X in value. That's the leverage options provide. However, the danger is that everyone gets enamoured with the potential gains and forgets about the loss factor. This is why coming up with a hybrid strategy of selling options and using a portion to purchase the calls, then when possible buying the option that was sold so that the option you bought could end up costing you nothing. Nicolas provided a real-time example of this.

[nicolas]

Does the stock have to double in value in order for the Call to double in value?

No, the stock doesn't need to move as much because the option provides leverage.

The greek Delta measures how much the value of the option is supposed to move for a $1 change in the price of the underlying stock.

If the delta of the call is 0.2, the call will increase by more or less $0.2 when the share price increases by $1.

In this case, delta was around 0.2. So for the call I bought at $0.6 to double, I'd need INTC to move by 0.6 / 0.2 = $3.

I know there are way more factors involved, but that's enough for me as a rough guideline to set my exit targets.

[PuppBaby]

You said you would like to own the stock at 25.60.
I am a little puzzled as to why you chose an expiration so far out.
If you want to own the stock, why not chose something closer?

I like that you have already made 60% though, that is good.
And, I really agree about choosing targets.
I need to do that.

I don't want to own. The sooner I can close the short put with a profit, the better. The trade is all about getting the call for free thanks to the put, and profiting from the call rising in value.
I started with answering that question as it's the #1 rule: only sell puts on stocks you wouldn't mind owning at that price. Taking care of the downside (the worst-case scenario) before looking at the upside.

I understand.
Does the stock have to double in value in order for the Call to double in value?

So many replies lol, this is how I remember. The simple answer is no, it can be anywhere from 0 - 10x or so. You have to account for you strike price and time premium. If you call is trading at $10 yesterday and it doubles to $20 today but your strike call is for $100 and the stock option expires today you're likely losing your entire option. However the same play above and your Call expires in 1 year, you may be making anywhere between 0 - 10x.

[jlhooter]

Here's an example of selling a Put on a down day, then buying a Call with less than half the time premium.

On Friday, INTC gapped down 10%. So, I wrote a Jan 2024 27.5 Put for $2.5. Then, I bought the Jan 2023 45 Call for $0.6.
Would I be happy getting INTC at $25.6? Yes.
I have a target to buy back the Put below $1.9, effectively giving me the call for free (GTC order $1.75)
Mental target for the Call: $1.2 (+100%), hard target (GTC order) $1.8 (+200%)
Target should be hit when INTC fills the gap to 40-41.

As I'm writing this, the Call is up 60% on a nice rebound of the stock.

Very nice real example of what I just learned from Sol the other day by trying to buy calls for free when the market momentum is up. Let us know how this ends.

[nicolas]

Let us know how this ends.

Got stopped at my entry price (I set a mental stop after it showed > 30% gain.)

[PuppBaby]

Sold ASAN (currently $23) 25 Call with expire 8/19 for a gain of about 200%. Time premium is not on my side and with the expected pull back I am not taking the risk if it stagnates, I am happy with the gains for a play I considered was lost 2 weeks ago

I also sold AMZN 153.75 call 11/18 for a gain of about 300%. I think this is plenty spike in profit for quick play I made last week, I plan on getting back in should the market pull back.