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Started By
Message
re: SLV
Posted on 12/11/13 at 9:21 am to Iowa Golfer
Posted on 12/11/13 at 9:21 am to Iowa Golfer
quote:Thank you for the explanation.
Buying the right to buy at a certain strike price. Selling the right for someone to sell to you at a certain strike price. Without owning the security. Called being blind, or being naked in the trade.
Blind and naked derivatives trading. Level IV for those that care.
It got all the Libtards upset after the last financial crisis we had. They trade blind and naked, but didn't have the capital to cover when they were called.
Somewhat like selling short. Better be able to cover, and cover in a hurry if it goes the wrong way.
In the SLV example I cited, your worst case scenario is that the call you purchase expires worthless, and the put you sell gets exercised, obligated you to buy 100 shares of SLV, at $20.00 per share, no matter what it is actually trading at. Also in the example I gave, after you buy/sell, you get paid. The selling price of the put you sold is greater than the cost of the call you purchased.
I do it all the time. Mostly always with a security that has predictable swings, such as paper silver. SLV. PSLV actually can back what they claim to own. I highly doubt SLV owns that much silver. I won't bore you further with the reasons, which are all public already anyway.
My investment strategy is a little simpler: buy low, sell high.
Posted on 12/11/13 at 10:42 am to LSURussian
Options are pretty simple. Start by just buying calls and puts. You are buying the right (but not the obligation) to either buy, or sell, at a set price, on a set date. Consequently, your only risk is the price you pay for the option. That's it.
So if you bought a 1/2016 call on SLV at a $20 strike price, it would cost you $325 per contract. Each contract controls 100 shares. You'd need silver to get above $23.25, by 1/15/2016. A good way to go long, without laying out the funds needed to buy the shares.
Keep in mind, the break even of $23.23 is in theory. SLV could be trading at $22.00, and your call could be worth $4.50, or $450.00. Time premium. It works both ways.
Or if you own the shares, you can sell the right to buy to someone (covered call) as insurance, or buy the right to sell (covered call) as in each case you own the actual shares.
I sell a lot of covered calls.
As an example I bought 3500 shares of PAL, and immediate sold 35 $1 strike price covered calls. Someone paid me $200.00 to buy these from me. It reduces my cost basis in the security. The only danger is that PAL goes to $7, and I have to sell at $1. Selling at $1 is still profitable for me, and I need to feel the pain of not being able to sell at a higher price.
So if you bought a 1/2016 call on SLV at a $20 strike price, it would cost you $325 per contract. Each contract controls 100 shares. You'd need silver to get above $23.25, by 1/15/2016. A good way to go long, without laying out the funds needed to buy the shares.
Keep in mind, the break even of $23.23 is in theory. SLV could be trading at $22.00, and your call could be worth $4.50, or $450.00. Time premium. It works both ways.
Or if you own the shares, you can sell the right to buy to someone (covered call) as insurance, or buy the right to sell (covered call) as in each case you own the actual shares.
I sell a lot of covered calls.
As an example I bought 3500 shares of PAL, and immediate sold 35 $1 strike price covered calls. Someone paid me $200.00 to buy these from me. It reduces my cost basis in the security. The only danger is that PAL goes to $7, and I have to sell at $1. Selling at $1 is still profitable for me, and I need to feel the pain of not being able to sell at a higher price.
Posted on 12/11/13 at 10:51 am to Iowa Golfer
quote:
Iowa Golfer
Good info for us novice investors, but just an FYI, Russian is no where near a novice
Posted on 12/11/13 at 11:12 am to Lsut81
I gather everyone on here is pretty smart. I enjoy reading and discussing this stuff.
It wasn't my intent to talk down to anyone. I don't think you said that, but I just wanted to clarify.
I'm a huge silver bull. Long term, own the bullion. I do like to trade also, and my favorite trades are usually very complex derivatives trades.
Right now I have a 17 options spread, designed for the gov't shutdown/debt crisis for Feb/Mar. It involves, DJX, SPY, QQQ, VIX and VXX. I also bought and sold futures contracts on all of these, and options on the futures contracts.
On the VIX this guy had a similar idea
also designed around February:
LINK
He has a bit more skin in the game than I.
It wasn't my intent to talk down to anyone. I don't think you said that, but I just wanted to clarify.
I'm a huge silver bull. Long term, own the bullion. I do like to trade also, and my favorite trades are usually very complex derivatives trades.
Right now I have a 17 options spread, designed for the gov't shutdown/debt crisis for Feb/Mar. It involves, DJX, SPY, QQQ, VIX and VXX. I also bought and sold futures contracts on all of these, and options on the futures contracts.
On the VIX this guy had a similar idea
also designed around February:
LINK
He has a bit more skin in the game than I.
Posted on 12/11/13 at 11:31 am to Iowa Golfer
quote:What's a put?
Start by just buying calls and puts.
Posted on 12/11/13 at 11:55 am to Lsut81
Now you've done gone and spoiled it.
I was going to get us some good learnin' from our new Yankee investment expert. I mean, however else can we learn?
Posted on 12/11/13 at 12:00 pm to LSURussian
quote:
Now you've done gone and spoiled it.
What, I was just sticking up for you...
You know what, I'm going the frick home
Posted on 12/11/13 at 12:38 pm to LSURussian
I've never fooled with options so after reading the last page I figured I'd go do something simple like 1 covered call or put contract just to mess around. I had to apply with my brokerage (Schwab) to do covered calls and puts. I understand doing messing with uncovered stuff or some of the more exotic crap that I don't understand. But covered?
Posted on 12/11/13 at 12:45 pm to rmc
quote:
I've never fooled with options so after reading the last page I figured I'd go do something simple
Id love to understand this stuff and do it
Posted on 12/11/13 at 12:52 pm to Lsut81
I had to read the definitions of puts and calls at least two times each before I really grasped it and then go find a calculator on the internet to show me exactly what would be going down. I'm still not sure I really know WTF is going on.
Posted on 12/11/13 at 12:52 pm to rmc
I've looked at trading options but I've just never figured out how I can make more money doing it instead of buying/shorting the shares themselves. I realize the downside risk can be limited but I can do that with stop limits.
I know some people who trade options because they can get the benefit of trading on larger blocks of shares without having the money to actually buy that many shares.
If you write (sell) options, the buyer will only exercise his option if it benefits him, which means it hurts you and it's out of your control what he does.
I know some people who trade options because they can get the benefit of trading on larger blocks of shares without having the money to actually buy that many shares.
If you write (sell) options, the buyer will only exercise his option if it benefits him, which means it hurts you and it's out of your control what he does.
Posted on 12/11/13 at 12:59 pm to LSURussian
quote:
write (sell) options
My view on selling options is that you'll make money most of the times. But the times you don't make money could take you to the cleaners.
Posted on 12/11/13 at 1:00 pm to rmc
quote:
I had to read the definitions of puts and calls at least two times each before I really grasped it and then go find a calculator on the internet to show me exactly what would be going down. I'm still not sure I really know WTF is going on.
Since you've done your research, can you explain what you have found, in laymans terms?
Posted on 12/11/13 at 1:03 pm to Lsut81
I'm interested in these things as well, more for information and knowledge than for actual use. So you guys may want to start a new thread so that others can weigh in and see. It's slightly hidden in this silver thread.
Posted on 12/11/13 at 1:35 pm to Lsut81
quote:I'll butt in here but my explanation below is far from complete.
Since you've done your research, can you explain what you have found, in laymans terms?
A call option gives the buyer of the option the opportunity to buy a block of stocks (in lots of 100 shares) at a set (strike) price. The person who buys the call option pays a price to the seller (writer) of the call option and this price is called the "premium."
Obviously the buyer of the call option hopes and/or expects the price of the underlying stock to go up. If it does, and the stock's price exceeds the "strike" price, he can exercise his option and buy the stock at the lower strike price and immediately sell the shares at a profit (minus what he paid for the option).
Or, he can simply sell the option itself which has also increased in price because the underlying security has increased in price.
A put option is the reverse; it gives the buyer of the option the opportunity to SELL the underlying security at a set price. The buyer of a put hopes and/or expects the stock's price to fall and he can make a profit if the price of the stock falls below the strike price of the option (minus what he paid for the option). Like a call option, a put option also has a market value and if the price of the underlying security falls, the market price of the put option goes up. So the buyer of the put can simply sell his option and make a profit, again minus what he paid for the option.
Put options are also used to protect the downside risk of a security owner just in case his stock declines in price. He can guarantee himself a price at which he can sell his stock.
Posted on 12/11/13 at 1:37 pm to LSURussian
I've been major buy and hold dividend stocks in my taxable accounts.
Been thinking about dabbling in individual stocks for higher returns, but am not sure of it being worth the extra stress, and higher underwear costs.
Been thinking about dabbling in individual stocks for higher returns, but am not sure of it being worth the extra stress, and higher underwear costs.
Posted on 12/11/13 at 1:40 pm to Lsut81
This is my understanding. Anyone who knows more than me feel free to correct me.
Selling a call:
I sell you a contract (1 contract = 100 shares) to buy Shares of Company X at $Y (strike price) by a certain date for $Z per share (premium).
So let's do an example.
I sell Lsut81 1 contract SLV for $20 per share by December, 21, 2013 for $.10/share.
You would give me $10 (.10 x 100) for the premium. On or before December 21, 2013 you would have the option of buying 100 shares of SLV for $2000 ($20 x 100) from me.
So how does this benefit you? Well, if shares of SLV are trading for $25 on December 20, 2013, you'd make a profit of $490 ($2500 - $10 - $2000) if your turned around and sold the shares.
If the price stays below $20, it doesn't make much sense for you to buy at $20 and you'd just let the contract expire. In that scenario I just made $10 from the premium.
A covered call means you actual own the underlying asset.
ETA: Russian beat me to it and seems to have made a more concise explanation.
Selling a call:
I sell you a contract (1 contract = 100 shares) to buy Shares of Company X at $Y (strike price) by a certain date for $Z per share (premium).
So let's do an example.
I sell Lsut81 1 contract SLV for $20 per share by December, 21, 2013 for $.10/share.
You would give me $10 (.10 x 100) for the premium. On or before December 21, 2013 you would have the option of buying 100 shares of SLV for $2000 ($20 x 100) from me.
So how does this benefit you? Well, if shares of SLV are trading for $25 on December 20, 2013, you'd make a profit of $490 ($2500 - $10 - $2000) if your turned around and sold the shares.
If the price stays below $20, it doesn't make much sense for you to buy at $20 and you'd just let the contract expire. In that scenario I just made $10 from the premium.
A covered call means you actual own the underlying asset.
ETA: Russian beat me to it and seems to have made a more concise explanation.
This post was edited on 12/11/13 at 1:45 pm
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