Advice on Calls/Puts

Options are very volatile and you can lose ALL the money you used to purchase them... or you could gain 1000%.

I like to buy highly volatile stocks and also buy 30% more in the money puts ($2-$10 in the money). Or If I think a stock is going down I’ll flip the scenario and short the stock (sell without owning, Elon doesn’t like this) and buy in the money calls. The strategy is to limit or eliminate losses if I’m wrong and make money if the strike price crosses the option strike.

I’ll usually get into a short term option position on Tuesday or Thursday and hold for a week to give the price time to move.

The risk is losing money if the price goes nowhere so I try to do this when I think prices will move for a particular company.

An example would be buying 70 AAPL stocks at $120 and buying 1 $122 put expiring next week.

Depends on what you’re trying to do. There are plenty of different options strategies that can be successful for you.

Personally, this is how I use options. It’s a conservative approach to generate income and boost returns in my portfolio.

I only sell options - calls and puts. So I’m always collecting premium. I will sell calls against portfolio holdings at high out of the money strikes which I would be comfortable selling the stock at. It’s not that I want to sell the stock, I just make sure I’d be okay selling if it crossed the strike price. I will sometimes close these call positions before expiration if I’ve made 75-90% of the premium - at which point, the risk/reward just isn’t there for me to stay in the sold call position as I don’t want to sell the shares. I typically will do this after the stock has a nice run up, so that premiums are higher. I never close the position for a loss - if the option gets exercised so be it, that’s why I choose my strike prices carefully.

For puts, similarly I sell puts on companies I like long term and would be okay holding. I secure the puts with margin, so I’m not holding up cash that can otherwise be invested. I sell the puts at strike prices I would be comfortable owning. Typically sell puts after the stock took a dive, and premiums are nice. Again, I will close before expiration for a gain but never close for a loss. If it gets exercised, I’m okay with that. I have Robinhood and a 2.5% margin interest rate. So holding with margin doesn’t bother me. If I get assigned I’ll then turn around and sell calls against it until I sell it. No matter how long it takes, because I’m comfortable holding the stock.

So yeah - I sell options to generate income. I don’t really trade options as I only close positions for a gain. The goal is to close the contract before expiration for a gain but if not, I enter each option position with the mindset that I’m okay buying or selling the underlying shares at the strikes I’ve selected.

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I would like to do this, but my brokerage account won’t let me. I get an error saying “I will be opening a prohibited position with BP -1 illegal shares”.

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I don’t know what that means.

Are you trying to sell naked calls? If so, I can see the brokerage account prohibiting that and rightfully so, you don’t need to be doing that.

I’m not sure who your broker is, but being approved for advanced level options trading generally has more to do with demonstrated experience and knowledge of risk than just showing that you have a certain account balance or net worth.

Most people start by selling covered calls or buying calls (usually) or puts (sometimes). The risk with selling a covered call is that the stock could plummet to zero and you could theoretically lose everything but your call premium. Of course, the other side is that the stock could rocket upward and you miss out on any gains above the strike. There are various ways to counter those risks, and that’s where option market knowledge comes into play.

Some people then move up a level so that they can sell cash covered puts. At that point, *some brokerages* also allow credit spreads to be bought and sold. Those are risk defined positions. You can only make so much, but you can also only lose so much. Before you begin trading those risk defined multi-leg positions, the brokerage just wants to know that you understand the mechanics and the risks. The same is even more true if you apply for advanced trading status, which will allow you to do pretty much anything you want (within your margin guidelines). If approved, you can then sell undefined risk positions, like naked calls, straddles, strangles, etc. Those all require margin accounts, as well as demonstrating a pretty indepth knowledge of how the option markets operate.

A lot of the approval process for more advanced options trading is based on how you filled out your risk tolerance profile. We won’t pretend that brokerages really care about their clients. But if they let someone who defined himself as a “conservative investor” sell naked calls or puts, strangles or straddles, then he lost his butt... there’s a good chance they could be sued. That’s what’s going on at Robinhood after that kid killed himself after screwing around with options positions that he really didn’t understand.

All that to say, give it time and work your way up the ladder of knowledge and experience. It takes awhile, but you can certainly do it. But make sure that you fully understand the risks, not just the potential rewards. Actual and true options TRADING can be extremely lucrative. But unlike what so many think, just buying a call and hoping for a rise in stock price or an expansion in implied volatility before expiration, isn’t really options trading - that’s just speculation.

I've been in the market for a decade or two, but after the sub-prime meltdown, I just loaded up on solid but beaten down ETF's and let them ride. That worked nicely. I had time and was still working a lot.

Now I'm mostly swing trading and selling calls because my confidence in the market has gone down of late. I like to find individual stocks that I'm confident in and sell calls for the premium. I'm avoiding buying calls of late since the market seems to be stumbling.

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That’s right, I try to sell an out of the money call or put with no offsetting position.
You did say you sell against your portfolio positions, my mistake.

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That is what is called selling a naked call. You are selling a call without the underlying stock shares secured. It is purely speculative and incredibly risky. Your loss is unlimited.

I won't say that you shouldnt get involved in options, but you definitely shouldn't get involved in a strategy like this as a beginner trying to learn the ropes.

My advice - Start by selling covered calls. It's probably the most basic options play that most people start with. It will give you some experience in how options contracts work and give you a better feel for things. After a few months and a better understanding of options (Specifically getting a better understanding of the Greeks), maybe start trying other options strategies that fit within your risk tolerance and strategy.

What is the difference between shorting a stock and selling a call? Don’t both carry the same risk? I know options well enough to sell them naked. My strategy would be to day trade out of money options with stops in place and not carry them overnight.

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What is the difference between shorting a stock and selling a call? Don’t both carry the same risk? I know options well enough to sell them naked. My strategy would be to day trade out of money options with stops in place and not carry them overnight.

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In that they both have unlimited loss potential, yes, the risk profiles are very similar.

Before trying to get a brokerage to approve you for that level of options trading, why not get approved for selling credit spreads? Your max loss and risk will be defined. It’s a level up from the vanilla strategies, but you’ll learn a tremendous amount about pricing and the Greeks (very necessary) along the way. One big key to not getting blown up in premium selling is to stay small, but be frequent. It’s the exact same concept as an insurance company.

Whenever you sell any sort of naked contract, understand that stops don’t mean a thing if the underlying stock makes a dramatic directional move off of news or a market event. The short options could also move dramatically if something causes IV to expand. A WTF price move in options only takes a few minutes. And if you’re a small player, getting an execution when there’s a stampede is not easy. As well, the options market has SO MUCH more gaming by market makers and pro traders compared to the main equity markets. Watch how big players will manipulate prices between 3:50 and 4 o’clock on expiration Fridays.


Not trying to talk you out of anything. I’m just saying be careful. I’ve been at this for 20+ years, and I learn something new all the time.

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You said you have been into stocks for a year and some change and more recently into options.

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That was the OP, I’ve been selling and buying options for several years, just not naked ;)

The truth is 75% of options expire worthless, so you have a much better chance making money by selling options than you do buying them. I know because I’ve lost plenty plenty on the purchasing end.

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so I am a 22 year old college student who has really gotten into stocks within the past year and a half. I had been just trading outright stocks for profit but have recently gotten into calls and puts and just need some advice on what to look for when making the call on a call/put, what things to look for in the company as well as indicators if that makes any sense at all. Right now I have really just been basing off delta/theta and trading volume but am trying to build an actual strategy. Thanks I appreciate any piece of information I can get

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Buying options is like going to the casino. No on can predict the price on a day consistently which options require some of.

Selling options though, that's like being the casino you may not win much individually but you can more consistently.