Ways to utilize options for the retail investor/trader.

Discussion in 'Stock Market Today' started by spindr0, Mar 21, 2021.

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  1. spindr0

    spindr0 Active Member

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    This thread is not about which long option to buy on what hot stock that is going to get you a multi-bagger.

    Options enable you to tailor the risk/reward profile of your positions. They give you the opportunity to earn income and/or growth with less risk. There are a variety of ways to do this and what's suitable depends on what you are hoping to achieve (risk versus reward).

    I'm not a yabba dabba gamma vega rho kinda of guy - just a retail trader who has utilized options for almost 40 years.

    Does anyone have any interest in discussing some of these alternatives?
     
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  2. Rustic1

    Rustic1 Well-Known Member

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    My position in PSTH

    IN 26.50 "approx" slightly red, but I have wrote STO 2 weekly calls both expired worthless to buyer BTO for a positive net gain.

    This being a SPAC the NAV is $ 20. I'm assuming I have a max loss of around 30%.

    I'm reluctant to write this weeks STO pending news that could possibly create a spike and I dont want to have my position exercised. Is there a way I can protect without spending capital without writing a call. Would a debit spread help? Please explain.
     
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  3. spindr0

    spindr0 Active Member

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    I don't follow the 30% max loss. If you're in at $26.50, you're down less than 4% based on Friday's close of $25.50. Also not sure why the NAV is relevant, based on those prices. Are you basing this on the assumption that they don't buy a company and you'll then get $20 back at the SPAC's term limit? Be that as it may...

    You can hedge in a variety of ways.

    A long stock collar involves capping the gain (short OTM call) to pay for an OTM short put that limits loss. You're hesitant to sell calls because you don't want a cap. That means that you have to pay out of pocket for protection.

    With an average implied volatility of about .75, buying a long put for protection won't come cheaply. IV contraction will hurt just as IV expansion will help. If you buy puts, consider further out expirations since the time decay (theta) is lower. IOW, the cost per day will be less.

    A bearish put spread (debit) will cost less since the credit from the short leg will offset a portion of the long leg's cost. However, the protection will be limited to the difference in strikes less the debit cost (plus the distance from current price to the long strike if the long strike is OTM).

    Risk and reward go hand in hand. You'll have to give up some reward to get protection (either debit cost or upside cap). Protection isn't free so to avoid spending capital, you'll have to be willing to sell the short call.
     
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  4. Rustic1

    Rustic1 Well-Known Member

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    Gotcha. Hopefully others will take this as a lead that choose to hold positions longterm and hedge.

    My other long is TSLA, deep in the red but being a longhold I just write STO weeklies and collect the chump change.

    In the past before I liquidated, I could hedge or simply write weeklies or whatever was availible.
    Even the ones that paid dividends I would mostly enroll in the DRIP plan and collect the STO premiums.

    Some don't realize the strategies that options can employ. Extra income just for holding.
    Obviously your experience drawfs mine, a special THANKS.
     
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  5. spindr0

    spindr0 Active Member

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    You're wecome. Hope that there's something useful in there.

    If you're not deep, deep in the red with TSLA, you can utilize a Repair Strategy to break even at a lower price, assuming that you can accept a cap. I thought that I wrote a reply about it here but I can't seem to find it. If you want additional info, ask away.
     
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  6. Onepoint272

    Onepoint272 2019 Stockaholics Contest Winner

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    You did write about the Repair strategy as quoted above, taken from post #6 on this thread:
    Dump portfolio and invest all in S&P500 dip? | Stockaholics

    Good stuff! Thanks.
     
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  7. Rustic1

    Rustic1 Well-Known Member

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    Good to have everything condensed in one thread, easier for the ones interested to observe,ask questions. The man knows his stuff. Options are complex and confusing but can be strategically employed for downside protection and also a way for extra income. :cool2:
     

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