Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[lewdog]

Originally Posted by scho63

Follow Hog Farmer now retired....he was the first I think to get in at $20.

I knew and said at the time in a post it was a good investment but I had no free investment capital.

Why not sell covered calls?

For every 100 shares you can sell one call. Sell a call 4 months out-collect about $245 for every 100 shares, giving you equal protection all the way down to $27.40 and max upside of $34.45

X 32 Strike Calls
Exp Apr 20, 2018 BID 2.38 ASK 2.60

I first want to thank you for your always very diligent responses and bascially teaching me about options trading from your posts here and in PM's. It's truly been helpful.

So I do understand what a covered call is and let's use this example for my final questions. The downside to writing covered calls is when a stock blows past your strike point. Yes, you get profits from the gains up to your strike point + the premium, but you missed out if that stock price goes through the roof on future gains. Fair enough, and likely worth the risk if you are planning to sell for profits in the near future anyway.

So in your example, if Stock X never gets to the $32 strike point (option not exercised), do I keep the premium ($245) and the option just expires (I keep my 100 shares)? What's to stop a person from just trying to make income off options that expire this way? Say placing this $32 strike point in a covered call, but actually speculating that the stock takes a dip. I collect the premium when this option expires ($245) and then also decide to buy more stock on the dip?

Am I thinking correctly here?

[scho63]

Originally Posted by lewdog

I first want to thank you for your always very diligent responses and bascially teaching me about options trading from your posts here and in PM's. It's truly been helpful.

So I do understand what a covered call is and let's use this example for my final questions. The downside to writing covered calls is when a stock blows past your strike point. Yes, you get profits from the gains up to your strike point + the premium, but you missed out if that stock price goes through the roof on future gains. Fair enough, and likely worth the risk if you are planning to sell for profits in the near future anyway.

So in your example, if Stock X never gets to the $32 strike point (option not exercised), do I keep the premium ($245) and the option just expires (I keep my 100 shares)? What's to stop a person from just trying to make income off options that expire this way? Say placing this $32 strike point in a covered call, but actually speculating that the stock takes a dip. I collect the premium when this option expires ($245) and then also decide to buy more stock on the dip?

Am I thinking correctly here?

You nailed it! You are correct

If a stock goes nowhere and you keep writing calls that expire, you keep collecting the premium until the option expires. You will only be allowed to write calls on covered positions. Most brokerage firms don't allow naked call writing for individual investors.

[lewdog]

Originally Posted by scho63

You nailed it! You are correct

If a stock goes nowhere and you keep writing calls that expire, you keep collecting the premium until the option expires. You will only be allowed to write calls on covered positions. Most brokerage firms don't allow naked call writing for individual investors.

I think the light bulb finally clicked fully today. Thanks!

So naked call writing is so dangerous because you own nothing to start. If you placed a strike on X at let's say $32, but the stock actually hits $40, you'd have to go and purchase the stock at $40 on the open market and sell it for $32 right? Thus taking a huge hit because your gains/losses cannot be capped like a covered call on stocks you actually own?

[petegz28]

You will always make money when selling a covered call. On the option trade itself. Now, if the stock you own drops, well.....you made money on your option trade but you still lose, net-net. Also, if you don't own several hundred shares, you aren't going to really make anything worth a shit writing 1-2 even 3 calls once you account for spread, commissions, etc. And if you get exercised you will pay a fee for that as well. I love the idea of writing options but to me, it's a big $ game. It's like being the "House" in casino terms. You'll make your money little by little by consistently.

[petegz28]

Originally Posted by lewdog

I think the light bulb finally clicked fully today. Thanks!

So naked call writing is so dangerous because you own nothing to start. If you placed a strike on X at let's say $32, but the stock actually hits $40, you'd have to go and purchase the stock at $40 on the open market and sell it for $32 right? Thus taking a huge hit because your gains/losses cannot be capped like a covered call on stocks you actually own?

Naked calls are great until the stock goes through your strike. Now the conundrum, if you have 2 weeks left on the option and the stock is above your strike, do you cover or do you wait as long as you can so the time value of your option shrinks possibly allowing you to cover for less? If the stock doesn't keep going up that is.

[petegz28]

Covered calls are great to lock in some profits, imo. Or, if you want to limit your profit, you can write a call and use the $ to offset buying a put but now you're being ultra conservative and will make minimal $.

If you want to use options for speculation, I like strangles and straddles. All these guys talking about spreads sound fancy but in reality I don't think they come away with a ton of money. When you buy options you're either right or you're not. Writing an option to offset the purchase price of another option well, just makes you feel better about your loss but will also limit your gains.

Then there is the Warren Buffet style of how to use options. When Warren wants to buy stock he writes naked puts. You write the put at the price you are willing to live with on a stock even if it goes below. You collect the premium if the stock keeps going up. If it goes down, you get the stock at the price you want + collect premium.

[BigBeauford]

We are looking finding a new credit card and possibly bank/checking account. The best credit card i could find id through USAA that gives 2.5% cashback, but i am open to suggestions. What about best checking or savings account?

[petegz28]

Originally Posted by BigBeauford

We are looking finding a new credit card and possibly bank/checking account. The best credit card i could find id through USAA that gives 2.5% cashback, but i am open to suggestions. What about best checking or savings account?

My Capital One savings account is paying .75%. They have a Money Market that will pay 1.3% on $10k or more. Maybe not the best but definitely better than a lot. And the CapOne Checking account pays .20%....again, not bad

[Hog's Gone Fishin]

X getting a boost today

10:04 AM ET 12/6/17
Symbol Last % Chg
X
31.93 7.04%
Quotes delayed at least 15 minutes

The preliminary found that imports of Chinese steel that is finished in Vietnam are covered by U.S. antidumping and countervailing duty orders on imports from China. As a result of DOC's preliminary decision, U.S. importers of cold-rolled and galvanized steel from Vietnam must make cash deposits equal to the applicable duties. DOC's final decision could be as early as February 2018.

"The Commerce Department's finding of circumvention represents a critical step to shutting down one of the many paths used to flood the U.S. with dumped and subsidized steel. This decision presents an encouraging sign for the steel industry and should put other countries and companies on notice that their cheating will no longer be tolerated. We urge Secretary Ross and President Trump to continue to aggressively crack down on unfairly traded steel imports, including immediate and broad action in the Section 232 investigation on steel imports and national security

[scho63]

Originally Posted by lewdog

I think the light bulb finally clicked fully today. Thanks!

So naked call writing is so dangerous because you own nothing to start. If you placed a strike on X at let's say $32, but the stock actually hits $40, you'd have to go and purchase the stock at $40 on the open market and sell it for $32 right? Thus taking a huge hit because your gains/losses cannot be capped like a covered call on stocks you actually own?

Correct again! It's UNLIMITED loss exposure...

[Amnorix]

Originally Posted by BigBeauford

We are looking finding a new credit card and possibly bank/checking account. The best credit card i could find id through USAA that gives 2.5% cashback, but i am open to suggestions. What about best checking or savings account?

Originally Posted by petegz28

My Capital One savings account is paying .75%. They have a Money Market that will pay 1.3% on $10k or more. Maybe not the best but definitely better than a lot. And the CapOne Checking account pays .20%....again, not bad

I'm with Fideltiy in terms of credit card -- auto cash back deposited into my brokerage cash management account.

For spare cash, I'm also with Capital One. I've had cash or CDs with them for well over a decade. Their interest rates are always very competitive.

[Hog's Gone Fishin]

(GOHE)

Cannabis and Bitcoin merge

[Hog's Gone Fishin]

(X) Four directors sold stock Dec 1. At $30, probably so they could pay for xmas to buy their spoiled ass rotten kids a new Camaro.

[Hog's Gone Fishin]

Originally Posted by lewdog

Steel Stock (X) closed above $30 today. I'm up 42% on this and debating when I sell it all. It's only been above $40 once in the last 5 years and for only a few months.

Just Closed at 33.23 , up over 4% today , some people are saying $50 and they think it will get a boost after Trumps state of the Union speech. I just don't see it taking a nose dive soon.

It seems a lot of the "big boys" are pulling money out of tech and putting it back into building and financials.

I picked up some (ALLY) the other day.

Also, BTW , I'm wrong 50% of the time. The other 50% I've been right half the time.

[lewdog]

Originally Posted by Hog's Gone Fishin

Just Closed at 33.23 , up over 4% today , some people are saying $50 and they think it will get a boost after Trumps state of the Union speech. I just don't see it taking a nose dive soon.

It seems a lot of the "big boys" are pulling money out of tech and putting it back into building and financials.

I picked up some (ALLY) the other day.

Also, BTW , I'm wrong 50% of the time. The other 50% I've been right half the time.

Yea, it looks poised to move pretty high. I'll keep holding. I don't have a ton of money in my brokerage account (fairly small positions as we focused on maxing our ROTHs this year) and I don't have 100 shares of X to do covered calls like Scho recommended.

And honestly, some of your stuff has been good information. People can laugh but I bought X stock based on some of your posts.

I didn't take your information on buying PNOW stock though.