That’s more risk than I take. I don’t sell options unless it’s covered calls or part of a spread. I prefer 2-3 months until expiration, so I feel spreads handcuff me. If I want to sell early, the OTM increase in value cuts into the gains. I usually use a close above/below the 10-day as a stop. If I get to where the time premium is near zero, then I roll to a different strike price so ~25% of the value is the time premium.
You feel relieved by seeing NVDA coming back to $127 !
I see this my another opportunity to buy Nvda options. I bought two call option with $150 expire Jan 2018 as I did not have money to buy shares!
identical to secured short puts.
Long underlying + short covered calls = cash + short secured puts
No margin involved.
Long call + cash = Long underlying + long put
Correct, there’s no margin involved. When you’re short a put, your downside is the strike price of the option if the stock goes to zero. That’s why I said high risk. Your risk is actually MUCH higher than your potential profit, but you’re betting the risk has a very low probability of happening… I prefer my risk being limited to the price of the option. Selling OTM options is probably an easy way to make extra cash. Maybe it’s not as risky as I’m thinking, but one bad trade can wipe out lots of good trades. If I did it, I’d do a spread so at least I know my max downside. Your potential downside might be 3-4x your potential profit, but if the downside only happens 10% of the time you’ll consistently make money.
You don’t get the mathematical equivalence?
When I short put, if share price declines to zero. I lost cash less premium from shorting put.
When you sell covered call, if share price declines to zero. You lost share price less premium from shorting call.
Exactly the same. Many people tends to ignore their shares when they sell covered call. Covered call has to be sold against shares.
Thought my formula is so obvious to engineers and anyone good at mathematics. If you still don’t understand, I would use real numbers from the market.
That’s true. I wasn’t thinking of the stock going to zero with a covered call against it. It’s not fair to say a stock can go to zero in one scenario and not the other. Maybe selling OTM options isn’t as risky as I thought. Do you use the strategy a lot? Do you use technicals to determine the strike price you think is unlikely to be reached? I feel like I’m missing out on a strategy I should have been using.
If stock price can go to zero or decline significantly, should sell the stock asap and don’t sell covered calls and/or secured puts. The fundamentals are not good.
Selling secured puts is good starting point to acquire shares cheaper than the current market price.
First thing first, you should have already determined from due diligence that fundamentals are good i.e. low probability of declining significantly, definitely not to zero, something is wrong with the due diligence if that happen. Then,
a. Not sure whether it will go up or down from here but don’t want to miss any appreciation => Short secured puts
b. Very sure it will go up from here => Long shares
c. Very sure it will go up very fast from here => Long calls.
d. Very sure it will do down very fast from here => Long puts.
e. Very sure it will go down from here => bear spreads
a., b., c, are scenario when you don’t own any shares yet (or want to add more).
If have shares, then for a. should short covered calls.
b. and c, same action if you want to make more money
d. sell shares, long puts if you want to make money
e. same action
Thanks. It’s always good to add new strategies. I always avoided it due to perceived risk.
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How much longer can nvidia ride the AI wave? Chips specially designed for AI are orders of magnitude better than generic GPU.
My guess is: Those who used to nvidia continue to buy their products. As long as economy is booming, nvidia does not stop.
NVDA on the way to $300.
Today, BABA is 13%, SIVB, wayfair, NVDA is up 5% each! Crazier than Bay Area real estate.
Scary ride, no wonder FED is hiking rates.
For the fact that the almighty Google throws huge resources into developing its own TPU validates the size of the AI wave, AI tsunami to be precise.
The target $300 Citi analyst is “only” assuming 50% of data center market. NVDA monopoly will never happen for that kind/size of the market if you think about it. NVDA only need to be a distance second after GOOG to be much bigger than its current size…
Citron points out that Nvidia’s core business, gaming, is where the focus should be. The company is expected to make $6.1 billion in revenue in 2018, compared to $1.9 in revenue expected from other bets.
“While we are fans of NVDA emerging business in auto, gaming, and AI …have the prospects of these technology doubled in value in 6 months or is this an example of analysts chasing stock price?,” Citron’s white paper asks.
Yesterday, I was confused when both TSLA and NVDA went up and up again.
Today, I am satisfied both entered slight correction, bought more TSLA today. Monday & Tuesday, I may perhaps buy additional NVDA.
You miss selling NVDA at $168! Now is $154! You buy at the start of a correction? Usually there would be margin calls on Monday and Tuesday i.e. more selling.
I am not concerned about NVDA dropping from 168 to 154, but rather happy market is correcting.
When I bought NVDA & TSLA, the plan is to hold long. However, yesterday I was disturbed when it was going up endlessly. When it is correcting today, it is an opportunity for buying. Whatever money I had, I purchased TSLA today.
[Edit] I took margin money, first time, and bought NVDA.
Market is going good. This kind of correction is healthy for stock market.
In any case, I always play safe, only short 2 puts Aug 18 $135 for $5.xx, assigned price of $130 or keep $5 per share if stay higher than $135.
One more thing, not investing, just doing mad money messing around.
Remember, investing is boring, nothing much to talk about. Talking a lot about something doesn’t imply putting much money in it or is very important… something many people seems to assume. I realize many people make many assumptions that are completely wrong.
Just read the article and realize Citron says it might trade down to $130, that is what I saw in the chart is the reason why I short $135 puts.