Stock Options

[BENTON PIGGEE]

I am considering an option strategy using covered calls and cash secured puts using options of the same stock. You write a covered call and keep the option $ whether it is exercised or not. If it is exercised, use the cash to cover a put, or if not, write another call if that one expires worthless.  If I have a balance of cash and stock(and therefore a balance of calls and puts), it seems like a very low-risk strategy.

Any of you have an opinion on this or know of any low-risk option strategies?

[HOGLIGULA]

I am considering an option strategy using covered calls and cash secured puts using options of the same stock. You write a covered call and keep the option $ whether it is exercised or not. If it is exercised, use the cash to cover a put, or if not, write another call if that one expires worthless.  If I have a balance of cash and stock(and therefore a balance of calls and puts), it seems like a very low-risk strategy.

Any of you have an opinion on this or know of any low-risk option strategies?

What options platform are you considering using?  Then I or anyone else can give you a realistic expectation of your results, (your theory is sound) but it really depends on the charges.

[BENTON PIGGEE]

What options platform are you considering using?  Then I or anyone else can give you a realistic expectation of your results, (your theory is sound) but it really depends on the charges.

Options First, and they told me I could trade an option for $7.75.(discount!!)

[LL COOL HOG]

I don't want to hijack this post but I'm seeking newbie advice. If a person wanted to get advice on simple trading
(Calls and Puts) where would one look? My E-trade account is old but not as old as my "How to beat the Street" book.

[BENTON PIGGEE]

I don't want to hijack this post but I'm seeking newbie advice. If a person wanted to get advice on simple trading
(Calls and Puts) where would one look? My E-trade account is old but not as old as my "How to beat the Street" book.

I wouldn't mess with calls and puts unless I had a lot of trading experience if I were you. They can be pretty complicated. Nevertheless, your E-trade account should have some tutorials to explain you the basics. I personally like the Options Industry Council website myself, but find a place you can practice with fake money first.

[LL COOL HOG]

I wouldn't mess with calls and puts unless I had a lot of trading experience if I were you. They can be pretty complicated. Nevertheless, your E-trade account should have some tutorials to explain you the basics. I personally like the Options Industry Council website myself, but find a place you can practice with fake money first.

Thanks!

[BENTON PIGGEE]

I have gotten into option spreads in my taxable investing account. Using long call spreads now, but I am prepared to go to short call or long put spreads if the market turns sour. Haven't tried short put spreads yet.  Anybody doing this?

I am owning stock and selling covered calls against the stock in my IRA account. I will go to dividend payers if a market correction occurs, but will stay out of bonds until rates rise substantially. Other options for IRA funds in a bear market?

I should have another update in 3-6 months.

[je100]

Benton, I am interested in an equity index put option.  As an example, if I were wanting to protect 1k, what is an estimated annual cost of the index put.  In other words, if I wanted to buy a put that expires a year from now, what is an average/estimated cost of that type of option?

[BENTON PIGGEE]

Benton, I am interested in an equity index put option.  As an example, if I were wanting to protect 1k, what is an estimated annual cost of the index put.  In other words, if I wanted to buy a put that expires a year from now, what is an average/estimated cost of that type of option?

Good question. Depends on the equity index involved(S&P 500 ETF, for example), and what your put strike price will be. Another form of protection that actually pays you is selling a covered call.

But I digress. A Jan 2015 put on VOO(at $178/share) with a strike price of  $175  would cost you $700.  You can only buy options expiring in January if they go into the next year. With 100 shares of VOO worth $17,800, that would be $39 per $1000 of VOO. Does that make sense to you?

HiM, did I calculate that correctly?

[je100]

Good question. Depends on the equity index involved(S&P 500 ETF, for example), and what your put strike price will be. Another form of protection that actually pays you is selling a covered call.

But I digress. A Jan 2015 put on VOO(at $178/share) with a strike price of  $175  would cost you $700.  You can only buy options expiring in January if they go into the next year. With 100 shares of VOO worth $17,800, that would be $39 per $1000 of VOO. Does that make sense to you?

HiM, did I calculate that correctly?

If I'm understanding that correctly, covering a large cap equity fund for a year, will cost on around 4%?  Is that close?

[BENTON PIGGEE]

If I'm understanding that correctly, covering a large cap equity fund for a year, will cost on around 4%?  Is that close?

Yes! In this example it is 3.9%.

[je100]

Yes! In this example it is 3.9%.

Gotcha.  Thanks a bunch.  It would be interesting to run a comparison of a VOO with annual put option vs a 60-40 portfolio blend.  At least with index put, you would know your maximum loss (4% in this example).  Thanks again, Piggie!

[BENTON PIGGEE]

Gotcha.  Thanks a bunch.  It would be interesting to run a comparison of a VOO with annual put option vs a 60-40 portfolio blend.  At least with index put, you would know your maximum loss (4% in this example).  Thanks again, Piggie!

Always happy to talk about investing.

[je100]

Another question.  Do you know of a good site that has some numbers to play with, that doesn't require an account?

[BENTON PIGGEE]

Another question.  Do you know of a good site that has some numbers to play with, that doesn't require an account?

Cant say I do. I am too impatient to try a trade without skin in the game plus I learn from my mistakes faster when I have caused some of my money to go to money heaven.

[je100]

Cant say I do. I am too impatient to try a trade without skin in the game plus I learn from my mistakes faster when I have caused some of my money to go to money heaven.

LOL.  I can relate too well.

[je100]

Any thoughts on the link below, Benton?  I made it in excel, then moved it online.  All of the formulas were lost, but hopefully the point comes thru.  Given how deviation of annual returns over the last 15 years, one would have been better to hedge via put options.  Who knows what the next 15 years brings.....

I'm making a few assumptions here.  One, 4% is a relatively normal cost for a put option on the S&P.  I'm also using a 60/40 stock/bond blend (assuming the bond market is the total bond market).  I know we could probably have done better using Long Treasuries over this period - probably, not sure.

http://1drv.ms/1kMLurP

[BENTON PIGGEE]

Any thoughts on the link below, Benton?  I made it in excel, then moved it online.  All of the formulas were lost, but hopefully the point comes thru.  Given how deviation of annual returns over the last 15 years, one would have been better to hedge via put options.  Who knows what the next 15 years brings.....

I'm making a few assumptions here.  One, 4% is a relatively normal cost for a put option on the S&P.  I'm also using a 60/40 stock/bond blend (assuming the bond market is the total bond market).  I know we could probably have done better using Long Treasuries over this period - probably, not sure.

http://1drv.ms/1kMLurP

Very interesting. I'm sure puts would have helped in the past 2 market crashes.

[je100]

Very interesting. I'm sure puts would have helped in the past 2 market crashes.

Yes sir.  Investors are notoriously bad for picking when those crashes come.  If an older person is looking into an annuity-type portfolio with ongoing, normal withdrawals, I would think this type of thing could work - without trying to determine when those crashes come.  You know your max loss in this example and if that loss is acceptable, it could work for the right person.

Think index annuity without all of the surrender charges....

[BENTON PIGGEE]

This is only for a select few, but there are ways to keep profiting when the market turns down, and it includes options. Selling covered calls on your stock won't protect you as well as buying puts, but you usually end up making money instead of losing money buying puts until the market does turn.

And when it does(look out for a double or triple top!), short call spreads, long put spreads, and inverse etf's are all ways to make money while the market is tanking.

And at some point, bonds will be worth touching again.

:razorback:

[BENTON PIGGEE]

The market continues to climb. With a new all-time high, I think we are safe unless we get a peak lower than our current peak.

I have broken even with stock spreads. But I did buy USO puts when oil was in the $60's so those are paying well at this point.

I started a new strategy that is safer. I buy(or sell a put on) an optionable equity that has a high dividend as well as good option prices. I make $ on the put, the dividend, & the covered call, and the equity if it goes up. COP will return over 25% annually with this strategy. I should know how well this works in 4-6 months.