What was the entry point on the longs? And how much would the stock move expectation be in either direction on the news? Im not the authority by any means. But typically id look for selling calls OTM and above your entry point. Maybe with not such high volatility. Selling cqlls at say $2.90, any drop is hedge. And thats $290 in the bank as long as it drops below $65. Any drop but still above $65, and she will either have to sell the shares for less than face value OR but the call back but for less but diluting the profit from the hedge. What i dont like is if stock pops $10, if she bought long above $65, she has to sell for $65. OR buy the call back for more like $13. (All of which are x 100, remember) lose lose if stock moves the direction she actually wants it to. Now what if she bought $65 puts at $1.65? Max loss if stock moves up is $165 per contract. But if her longs net more than that, its a no loss move, just less win. If it drops to $60, the puts are worth no less than $500 at expiry. A lot more while its moving wildy with time left.
@B Russ am gonna have to read your explaination several times - get some of what you are saying but way lost with other aspects!!
better if B Russ explains; Puts: The buyer of a put has the right to sell the underlying stock at a set price until the contract expires. When you sell a covered call, also known as writing a call, you already own shares of the underlying stock and you are selling someone the right, but not the obligation, to buy that stock at a set price until the option expires—and the price won’t change no matter which way the market goes.
@fireopal you need to give him your avg. buy price to figure out if this is a good idea - @B Russ doesn't she pocket the 2.90 right away and then must relinquish the stock @ $65 if it goes below the strike price? i used to do this all the time --- years ago and have forgotten most of how it works. If the stock moves higher - don't they just expire worthless - and she forfeits the stock & keeps the $2.90 per option?
Haha. We can go over it more. To help u grasp though. Selling a call is hoping a stock falls or doesnt climb to strike. You make $ on the sell. Buying call is hoping the stock climbs. U make spend the money on the contract and make money when stock climbs. Selling a put is exact opposite of selling a call. U want it to climb or not hit strike. Buying a put, you pay the seller but make money whwn stock tanks.
She must relinquish a stock at $65 if she sold calls if the stock is ABOVE $65 on expiry. That OR buy calls to close the contract. But that route litterally has infinate loss potential.
so, if her avg buy price is @ $65 - and she sells the 65's - she takes in 2.90 per - so. her break even is 67.90 and she can buy back the calls there and keep the stock?
She could. But at that point, the the price of the calls would have gone up. So she would be paying more to buy the calls than she originally collected, selling the calls. If it were me looking to hedge a long position againt news, i would cover by buying puts if i were to do anything.
An ideal covered call for me would be something like owning F since (and im pulling hypothetical numbers here) owning since $9. Its now $12 and u sell calls against them. Maybe a $12.50 or $13 strike for. Idk. $1. F moves slow. Likely hood of it getting to them is small. So u collect $100 and if they expire at $12.30, her long shares gained value and she keeps the stock and premium she collected. Wash rinse repeat. If stock went down in that timeframe, say .50, instead of losing $50 stock value, still still made $50. Share value loss+ premium from call sale. Lets say it went to $13.60 day before expiration. She clould close by buying calls because time decay has still made the calls worth probably only .12. (She originally collected $1. Still profitable) Or worst case, she has to sell at $12.50 even though stock is maybe now $13.5....but premium collected washed the difference, AND, she was long at $9....so still made $3.50 per share before she had to sale on an excercised option. Long i know. But its a lot of info and options are my love affair.
SIFY: $1.53 - looks like 50% retracement ends right at this level - buying. watch out for pre-earnings dip in the market - there will be some great buys after earnings announcements!! especially in bio, o&g & tech. Fri. watchlist gainers: XRF +14%, BZUN +6%, ESV +4%, IPI +4%, UCTT + 4% Have a great weekend!
>>> to help me grasp you need to write a dummy article and/or think i need to sit in front of a computer with someone that can break this down so i can "see it" b/c way too confusing but maybe my mind is making it more complicated than it is...
Yeah, i wouldnt sell calls against it. If it you are forced to sell the shares, you are forced to sell for a loss.
