buy/write question

[darrenmo]

Hi guys,

Is it possible to do a buy/write for an amount below the current share value?

Example, could I sell at a strike price of $12.50 on this stock MSFT Options | Microsoft Corporation Stock - Yahoo! UK & Ireland Finance

Darren

 

[Martinghoul]

You can sell whatever strike your heart desires... What exactly it's gonna do for you is an entirely different question.

 

[darrenmo]

You can sell whatever strike your heart desires... What exactly it's gonna do for you is an entirely different question.

Thank you for your answer, I think I was confused and thinking I could treat it as a "Put".

Do you have any tips for "renting" using the buy/write strategy? I have done about 10 simulated trades online and growing more comfortable now. My aim is monthly income from the premium. I don't care if stock get's called away so long as the premium covers the loses.

Thanks for any tips!

 

[Martinghoul]

Thank you for your answer, I think I was confused and thinking I could treat it as a "Put".

Do you have any tips for "renting" using the buy/write strategy? I have done about 10 simulated trades online and growing more comfortable now. My aim is monthly income from the premium. I don't care if stock get's called away so long as the premium covers the loses.

Thanks for any tips!

Well, like pretty much any strategy, it works, if you do it right, and doesn't, if you do it wrong. Have you examined the payoff profile of such a position and are you happy with it? Do you realize what you're getting and the price you're paying for it? The only tip I can offer you is to look carefully at what you're doing and examine what happens to your trade under different scenarios.

 

[Dommo]

Well, like pretty much any strategy, it works, if you do it right, and doesn't, if you do it wrong.

Martin, would you say this is generally true of options trading from a retail POV? I looked into option selling some time ago, but concluded that even delta (only) hedging costs (under different hedging strategies/events) rendered it negative expectancy - and in many cases the money made or lost in trading the underlying seemed likely to dwarf the premium. Costs seem to make option selling, at any rate, prohibitive.

It seems to me that you're only likely to make long run retail money on options (long or short) if you're fairly consistently directionally correct (on underlying and vol) and can withstand any drawdown, and if you're right in either of these things, surely you might as well trade the underlying, or outright vol.

BTW did you take your moniker from the gambling strategy or the stoch process?

Thanks

 

[Martinghoul]

Martin, would you say this is generally true of options trading from a retail POV? I looked into option selling some time ago, but concluded that even delta (only) hedging costs (under different hedging strategies/events) rendered it negative expectancy - and in many cases the money made or lost in trading the underlying seemed likely to dwarf the premium. Costs seem to make option selling, at any rate, prohibitive.

It seems to me that you're only likely to make long run retail money on options (long or short) if you're fairly consistently directionally correct (on underlying and vol) and can withstand any drawdown, and if you're right in either of these things, surely you might as well trade the underlying, or outright vol.

BTW did you take your moniker from the gambling strategy or the stoch process?

Thanks

Dommo, I think it's true for retail as well. Sure, some strategies are just not viable in a retail context, like the example you have given (basically, anything that involves trading frequently is a no go due to transaction costs). And yeah, sure, that means that the universe of possible trades shrinks and directional strategies become dominant. So I kind of agree, generally, but I do think that occasionally there are other interesting vol opportunities out there that are accessible to retail. You just have to be very patient and careful, is all.

And my name comes from both really, 'cause, if memory serves, they're one and the same.