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re: Can you sell calls to establish a short position?
Posted on 7/12/16 at 8:08 pm to Iowa Golfer
Posted on 7/12/16 at 8:08 pm to Iowa Golfer
quote:
Edit - And your naked trade is down 79% at open. What you collect .23-.79 for, now needs to be bought back for $1.73. Or if exercised, you'd need to buy 500 shares of SPY @ 214.86, and sell 500 shares at 213.50. You are left holding nothing. No short position.
I don't claim to be an expert but this doesn't make a lick of sense. I had a call spread I was short earlier this year. I don't remember exact strike prices but let's say 210 and 213. I was short 3 contracts at 210 and bought 3 long at 213. Trade moved against me and the 210 were assigned but the 213 were not in the money. I woke up short 300 shares of SPY which is exactly what bigfella wanted...
I ended up buying back to close the trade at a better price cuz SPY tanked that day after a big up day before but that's irrelevant. You sell a call that gets assigned you are now short shares. You don't buy shares and then short unless you want to close the position out.
I feel like you are unnecessarily scaring people away from the trade. No it's not the best method due to potential losses but bigfella isn't some small investor... his margin more than covers a 5 contract trade if that's how he wants to play it.
This post was edited on 7/12/16 at 8:37 pm
2
Posted on 7/12/16 at 8:21 pm to Big Saint
quote:
The trade would be upside down right now $1.78 per share, and the option is up today over 100%, so the sold calls would have lost over 100% of yesterday values, which were already down about 50% yesterday.
When you say it like that its silly bc it would be down no more than had one gone short 500 shares at 213.50 or whatever. Its not 100% of anything major you'd be down a few hundred bucks on 5 contracts. I did go short today at 215.15 500 shares worth
Posted on 7/12/16 at 8:38 pm to dabigfella
I agree with you. I'm guessing the response was directed toward Iowa Golfer.
Posted on 7/12/16 at 9:06 pm to Big Saint
quote:
I feel like you are unnecessarily scaring people away from the trade.
Scaring people away from selling naked calls? I hope so. You are referencing a spread above, and he has been talking about selling naked calls. No spread in his trade. Two different animals as you are aware.
But yeah, for 3-5 contracts you're going to wake up short shares. But you'll eventually need to buy those shares. Or they'll get bought for you. So he'd eventually, and probably sooner rather than later given what SPY is, not be short anything. And he wants to stay short several months from what he posted.
But you're right, he can do as he pleases. But it is one of the strangest ways I've ever seen to go short, given how relatively brief his short would be. A matter of weeks probably rather than months.
Posted on 7/12/16 at 9:42 pm to Iowa Golfer
Yes my trade was a spread but the long portion wasn't ITM so was never excersized by me or automatically. The short position was early assigned and i got lucky that it dropped the next morning so I could close out the resulting short position. I bit off more than I could chew so had to close out.
I never claimed to be an expert but I'm definitely not getting why he couldn't stay short if that's what he wanted to do. Maybe you could explain. Like I stated I only bought mine back because I was over exposed. Otherwise I would have held the short shares like he claims he wants to do.
quote:
But you'll eventually need to buy those shares. Or they'll get bought for you. So he'd eventually, and probably sooner rather than later given what SPY is, not be short anything. And he wants to stay short several months from what he posted
I never claimed to be an expert but I'm definitely not getting why he couldn't stay short if that's what he wanted to do. Maybe you could explain. Like I stated I only bought mine back because I was over exposed. Otherwise I would have held the short shares like he claims he wants to do.
Posted on 7/12/16 at 9:57 pm to Big Saint
Even though SPY wouldn't be hard to borrow, if the trade kept moving away from the short, the brokerage would need to return shares, and could force a buy to cover. They either have the shares, or more likely borrowed them from a margin account. Also, if SPY had volatility, they'd force a buy to cover almost immediately.
That's on any short sale, not just an assignment or exercise.
So liquidity here could actually work against him. ETF's are largely for trading, and if it kept going up, and someone wanted to sell shares that the brokerage borrowed from their margin trading account, those shares need returned.
But it is possible he could stay short a long time, but I doubt it here. And strangely enough, for the exact reasons he wants to go short. I see two things happening, SPY continues to rise, and traders want to sell to take profits, or its going to get volatile due to the highs it's been touching recently.
That's on any short sale, not just an assignment or exercise.
So liquidity here could actually work against him. ETF's are largely for trading, and if it kept going up, and someone wanted to sell shares that the brokerage borrowed from their margin trading account, those shares need returned.
But it is possible he could stay short a long time, but I doubt it here. And strangely enough, for the exact reasons he wants to go short. I see two things happening, SPY continues to rise, and traders want to sell to take profits, or its going to get volatile due to the highs it's been touching recently.
Posted on 7/12/16 at 10:14 pm to Iowa Golfer
Fair enough and good points. Thanks for the explanation.
Posted on 7/13/16 at 5:55 pm to dabigfella
Threads like this make me feel so stupid
Posted on 7/13/16 at 7:20 pm to Mr.Perfect
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