Random Option plays on Market Update stock plays

[Eric]

But i have Vale scp 091622 15 put and i guess it has moved into the money as the underlying stock is now 14.12 ish (i do not get why i have not been assigned unless noone is interested in this stock?) but when i check to get to Buy to Close the price is way up at $2.00 and i was paid 1.43. So how would i use ur method to get out of this - would i buy to close and take the loss? and then.......? or just wait to see if i was assigned. thk u

September is a long ways away, stocks go up and down; give it time and don't rush to lock in a losing trade before it becomes a winner.

The method to "get out of it" is to roll it farther out. September $15 is $2 (last), December $15 is $2.75 and December $14 is $2.35. Either way you get a small cash deposit to your account and more time for the stock to move well above the strike price so the option value declines substantially.

[jlhooter]

Any comments on doing the following?
Sell BABA Aug 5, 2022, $115 put for about $9.30-ish.
It is trending up from its 19-month tumble. Looks oversold on monthlies, looks to have positive divergence on the weeklies and is close to breaking through its 200-day moving average.
Too soon?

[Budge]

Any comments on doing the following?
Too soon?

Not at all. Daily on a tear, weekly resistance (R) about 124. Get through that monthly first R 160-170 then mid 200. Lots of room to run.

[jlhooter]

Any comments on doing the following?
Too soon?

Not at all. Daily on a tear, weekly resistance (R) about 124. Get through that monthly first R 160-170 then mid 200. Lots of room to run.

Budge thanks for your analysis, very helpful.

[SOL]

Any comments on doing the following?
Sell BABA Aug 5, 2022, $115 put for about $9.30-ish.
It is trending up from its 19-month tumble. Looks oversold on monthlies, looks to have positive divergence on the weeklies and is close to breaking through its 200-day moving average.
Too soon?

The monthly chart of BABA



It looks good on the monthly charts, with both indicators trading in the insanely oversold ranges . A monthly close at or above 136 (preferably 138) should be enough for it to test the 173 to 180 ranges

Why not consider a special credit spread

Sell the put and use part of the proceeds to purchase a far out-of-the-money call.

[jlhooter]

Any comments on doing the following?
Sell BABA Aug 5, 2022, $115 put for about $9.30-ish.
It is trending up from its 19-month tumble. Looks oversold on monthlies, looks to have positive divergence on the weeklies and is close to breaking through its 200-day moving average.
Too soon?

The monthly chart of BABA



It looks good on the monthly charts, with both indicators trading in the insanely oversold ranges . A monthly close at or above 136 (preferably 138) should be enough for it to test the 173 to 180 ranges

Why not consider a special credit spread

Sell the put and use part of the proceeds to purchase a far out-of-the-money call.

Sol I like that idea too. I should consider selling an ATM put because this stock looks like it will run and buy an OTM call in the 135-ish range for about half of the put premium as a credit spread at a Jul 29 exp.Thanks.

[harryg]

Personally I tend to prefer books/text to videos, because watching something is essentially passive.

However, I think this video could be of use. Although quite simple, it contains some useful points on choosing strike when selling covered calls. It addresses the trade-off between collecting premium and having your shares called away.

If you want to skip to that bit, it's at 9 mins to about 15 mins.

Selling puts also covered.

Video is directed towards a particular service for clients of Firstrade, but the info is general.

https://jwp.io/s/guZFIcRb

[jlhooter]

Personally I tend to prefer books/text to videos, because watching something is essentially passive.

However, I think this video could be of use. Although quite simple, it contains some useful points on choosing strike when selling covered calls. It addresses the trade-off between collecting premium and having your shares called away.

If you want to skip to that bit, it's at 9 mins to about 15 mins.

Selling puts also covered.

Video is directed towards a particular service for clients of Firstrade, but the info is general.

https://jwp.io/s/guZFIcRb

Harry,
I like Tony Zhang. If you get the channel, check out Options Action on CNBC Fridays. I watch to try to understand what they are talking about for options trading.
I do, however, like Tony's videos. I have seen this or same info in this or another video that defines targeted delta and expiration for selling covered calls (SCC) and selling cash secured puts (SCSP) related to the Wheel Strategy. He helps drive your greed out by pushing a plan. My takeaway was the following:
- SCC
- Expiration target: 45 days
- Delta target: 0.15 (helps you keep your shares)
- Couple with Sol's advice
- Sell on Up days
- Buy back on Down days

- SCSP
- Expiration target: 30 days
- Delta target: 0.40 (helps you get the desired shares)
- Couple with Sol's advice
- Sell on Down days
- Buy back on Up days

[Yodean]

https://jwp.io/s/guZFIcRb

Good review with some nice nuanced points made, for me. There was a nice gem in the last two minutes, as well.

[Yodean]

In a significant market downturn, bearish sentiment, if not outright fear, can drive down the share price of good companies rather drastically. When the market is in a sustained selling mood, there can be a substantial disconnect between the long-term fundamentals and the technical price action we see on the chart.

What can we do when good companies are trading at what appear to be bargain prices? We could “stick our toe in the water” and buy shares. But what if we’re wrong about whether a bottom in the share price is in place? Or what if the stock takes a very long time to build a base and goes nowhere for an extended period?

Rather than buying shares, we could sell put options instead. It’s a strategy famously used by Warren Buffett to acquire shares at a discount.

First, a quick review of put options. Someone who owns or is “long” a put has paid a premium to have the right, but not the obligation, to sell shares to the counterparty at the strike price. But that right exists only until the option expires.

The counterparty who has sold, or is “short” a put, has an obligation to buy shares at the strike price. That obligation is eliminated when the option expires, and the put seller gets to keep the premium collected whether they have shares “put to them” or not.

Although selling puts can be a way to acquire shares at a discount, traders (as opposed to investors) may just be interested in collecting the put premium as an income strategy.

We must like the stock at or around the strike price and believe it will recover over time. Even if we’re just selling puts to collect premiums, keep in mind that we could end up owning shares.

Of course, there must be options available on the stock. The options should have good liquidity – decent volume, open interest, and bid/ask spreads that aren’t too wide. The strike prices near the current share price should have hundreds, if not thousands, of open interest contracts. The bid/ask spreads on the options should be just a few pennies wide. It’s usually a good sign of option liquidity if weekly, not just monthly, options are available.

Look for companies with a long history of good earnings that have rebounded after many economic cycles. The company sells a product or service that will likely remain in demand for the foreseeable future. (No “buggy whip” manufacturers.) A good candidate will likely weather the current storm and come out okay when the economy recovers.

Ideally, the share price is under $25, preferably under $20. At that price level and below, the option premiums relative to the share price make for efficient use of capital and an attractive return on risk.

Say company “ABC” was trading for $34 a share before the general market selloff but now is trading for roughly half that at $15.60. There is “blood in the streets,” but overall sentiment may be improving.

The price action on the chart shows some tentative signs of bottoming. A gap up with increased volume is a good sign. A recent earnings report that wasn’t as “bad” as expected is another good sign.

In this example, the premium for the $15 put is $1.20 for an expiration 42 days away. While the $15 strike is currently out-of-the-money (OTM), if we had shares put to us at $15, our cost basis would be $15 – $1.20, or $13.80.

If the shares were trading at $14 at expiration, we’d have shares put to us. But we would still be ahead on the trade with a profit. We could turn around and sell those shares at $14 and have a profit of $0.20.

As options sellers, we’re selling time value that decays as the expiration date approaches. We know that regardless of what happens with the share price, the time value we sold will be $0 at expiration.

As an alternative to risking assignment, we could roll the trade forward rather than wait for shares to be put for us. We could buy back the option on or near the expiration date and sell another option further out in time. We can typically do that for a net credit. In this example, we might be able to collect another $1 in premium. So now our risk in the trade is reduced to $15 – $1.20 – $1.00 = $12.80.

Put selling can be a savvy way to go “bottom-fishing” for good stocks, either to acquire shares at a discount or just collect option premiums. Selling puts gives us a way to get “paid” while we wait for the share price to recover. We can make a profit if the share price goes up, sideways, or even down a bit.

*****

The above is an excerpt from a grizzled, fairly conservative and successful trader I've known for over a decade. Most of it is review for those of us who are Wheeling, but there's a few nice nuanced tidbits in there.

[LoriPrecisely]

Very good summary. I agree this is a great strategy in the current market. I am grateful I have learned about it from this group of great people.

Some of the stocks I have been making pretty decent premiums on are: Paypal, Square/Block, Asana, Affirm, Trade Desk, Wolf Speed, Match and PPD.

I am not sure why he said to use a low priced stock. I have not had much success getting high enough premiums to make it worth the time on low priced stocks such as: Vale and Finx,

[LoriPrecisely]

Any comments on doing the following?
Sell BABA Aug 5, 2022, $115 put for about $9.30-ish.
It is trending up from its 19-month tumble. Looks oversold on monthlies, looks to have positive divergence on the weeklies and is close to breaking through its 200-day moving average.
Too soon?

The monthly chart of BABA



It looks good on the monthly charts, with both indicators trading in the insanely oversold ranges . A monthly close at or above 136 (preferably 138) should be enough for it to test the 173 to 180 ranges

Why not consider a special credit spread

Sell the put and use part of the proceeds to purchase a far out-of-the-money call.

Sol I like that idea too. I should consider selling an ATM put because this stock looks like it will run and buy an OTM call in the 135-ish range for about half of the put premium as a credit spread at a Jul 29 exp.Thanks.

Jeff, Did you do this trade?
If so, did you get assigned?

[jlhooter]

The monthly chart of BABA



It looks good on the monthly charts, with both indicators trading in the insanely oversold ranges . A monthly close at or above 136 (preferably 138) should be enough for it to test the 173 to 180 ranges

Why not consider a special credit spread

Sell the put and use part of the proceeds to purchase a far out-of-the-money call.

Sol I like that idea too. I should consider selling an ATM put because this stock looks like it will run and buy an OTM call in the 135-ish range for about half of the put premium as a credit spread at a Jul 29 exp.Thanks.

Jeff, Did you do this trade?
If so, did you get assigned?

I did the trade and have not been assigned yet. I have about 13 days left and will let you know happens.
I sold the Jul 29, 2022, $121 Put for $9.57 ($111.43 basis) and was thinking about closing it (buying back) at ~$6 on 7/7-7/8 for ~$3 gain (~33% of my sale, which is around my target for buying back; got greedy) but thought the price would climb. It instead dropped as it hit its resistance ~$125 and is now at $102.44. I accept if I get the shares Put to me since this would be a long play, but I learned a few things: (1) stick to your plan on buying back at prescribed targets (I am doing this on other plays), (2) consider doing longer expiration dates for some cases (not sure I would change anything on the put, but might have considered going longer on the call (I bought a Jul 29, 2022, $135 call for $4.56 at same time as put)) and (3) a gain of 0% or better is something I should have done if I expected the price to drop again; could have rolled a new put at a lower strike (coulda, shoulda, woulda). I have no regrets.

[LoriPrecisely]

could have rolled a new put at a lower strike (coulda, shoulda, woulda). I have no regrets.

I hear ya. Every play is different, and even though I look at the charts and read the news updates on Schwab, I still feel like every play is a guess. Sometimes the stock price moves very little, sometimes a lot, up and down. There seems no rhyme or reason. I guess that is part of the game.

Sometimes I sell a Call and a Put on the same stock for the same date, different strike prices. Fun stuff.

I told myself I wouldn't pay high premiums any more in order to close a Put, but I just did on PDD Friday. I can sell another one on Monday, to make my money back.

I agree with you on having a profit to sell at. I know Sol has talked about that, but I haven't settled on an amount yet. I don't like to close when there is still money on the table, even if it is 80%. But, I have watched a Put for August 15 expiry, go from 50% profitable to being in the red now.

I have not done a longer expiration than 2 months, but after Sol said he did, I have been watching how the prices fluctuate a lot, just like they do for nearer expirations, so I will try that soon.

[LoriPrecisely]

Google is doing a 20:1 stock split July 18.