Board 8 > Stock Topic 19

(+) Yeah! (+)

I would say rule of thumb with options never buy them if you don't think being In The Money at any point is viable. It's fine to sell them well before expiry, and in fact you should sell some if you're well ahead of schedule

But you should always base the endpoint on the possibility. You shouldn't gamble on it surging in one direction ahead of schedule and being able to unload well before expiration.

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Lopen posted...

IF you're buying options you need to need to know what they symbolize

You're basically buying an inverted warrant with expiration Nov 19th that gains value as GME goes down and is "in the money" if GME goes below $5

Theoretically due to how volatility influences price it COULD become more valuable than that price even if it doesn't, but you're playing a very dangerous game because as time of the contract decreases and volatility decreases the value of the contract decreases.

Goddammit I thought it followed the chart 1-1. So...wtf is the point of that chart? You guys sure here?

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I have no idea what the chart means I just know what Puts mean and what Calls mean and what influences price (volatility and the underlying share price)

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Yes I would suggest you get out of that put ASAP. I really wouldn't be surprised if that thing halves in value if GME hasn't cratered by tomorrow.

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Like if GME dropped to $60 tomorrow you could probably unload those contracts for a small gain. A really small one. Like the volatility is so high and the endpoint is so far out that that's still carrying the price for the most part, being closer to right means little in that situation.

But like the reason volume is so low is that no one is really interested in the contract. And for good reason. You lucked out a bit that only a small amount were able to fill because of this.

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Eh someone took them from me no problem? I'm out like 10 bucks whoops

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Just be happy we were here to tell you to not do that

That's an easy $6k loss. You'd probably lose like $3k within a week too.

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And since you are buying the put that means you are giving someone else money to guarantee that they will buy those shares from you at $5 apiece on that date. So either you are going to be stuck in the contract or someone else will have to feel strongly enough that the contract has value that they are willing to take that liability off your hands. And the shares would have to be even lower than just 5.00 for it to be a gain of $6200.

GME hasn't been below $5 since august and it's been steadily climbing since then despite the ongoing pandemic conditions (even before WSB shenanigans). And you think it's likely enough to fall beneath $5 in the next 9 months? That's not a bet that i'd make.

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What am I missing that makes that so dangerous? Just the implied volatility? The strike price being so crazy far from where it's at?

I mean, if I up it to a $20 strike price, I still don't need it to break 20 to make a shitton of money I'm assuming. I don't fully understand what I did wrong there. But hey I did only watch that TD Ameritrade video about the Greeks once and it was a while ago

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You need it to break the strike price to make money. I mean you can theoretically sell it to someone else before the stock has broken the strike price, but why would they buy it from you unless they expected it to break the strike price later?

Here, the problem is the strike price is ludicrously low to the point of being nearly impossible.

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Bad news rip my shorts. Good news heellllo most of my investment.

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StartTheMachine posted...

I still don't need it to break 20 to make a shitton of money I'm assuming. I don't fully understand what I did wrong there.

That assumption is what you did wrong there

Right now the price on GME options is being heavily heavily driven by the volatility greek

So basically if it does anything but go way down and fast you lose money fast. If it stabilizes at all the price tanks a ton. If it goes up the price tanks a ton.

That's why I was saying sells seem like super easy money right now.

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Dammit, I will call my Uncle's financisl advisor later today for his advice if he were to make a play. Welp thanks so much for saving my ass guys. I saw that green chart and I liked it. Guess I can be a way too brash.

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Lopen posted...

That assumption is what you did wrong there

Right now the price on GME options is being heavily heavily driven by the volatility greek

So basically if it does anything but go way down and fast you lose money fast. If it stabilizes at all the price tanks a ton. If it goes up the price tanks a ton.

That's why I was saying sells seem like super easy money right now.

Selling puts or calls? Or either based on what the hell you think it will do the next day?

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There is a reason I'm selling calls on AMC right now. If it goes anywhere but to the moon I make a lot of money.

Granted I really should've waited until after the rocket to sell but at least I bought some before the rocket. Seemed like a good hedge.

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Lopen posted...

There is a reason I'm selling calls on AMC right now. If it goes anywhere but to the moon I make a lot of money.

Granted I really should've waited until after the rocket to sell but at least I bought some before the rocket. Seemed like a good hedge.

What calls are you selling? So you're basically just looking for buyers hoping to get lucky for a huge in the money call, but realistically it's probably just going to trade sideways

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StartTheMachine posted...

Selling puts or calls? Or either based on what the hell you think it will do the next day?

Well you can only sell calls if you own 100 of the security unless you sell naked (don't sell naked) so I was referring to selling puts for GME in particular

For instance if you put up $6000 as collateral (so it's not naked) you can sell a put of GME for $855 that expires on Feb 12, which unless GME falls below $60 below then you just get $855 for not being able to invest your $6000 for a bit over a week.

With your first post you had the same situation but at $1900 for Feb 26 IIRC. You basically get 33% return on investment just betting GME doesn't fall below $60 before the 26. Seems easy.

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StartTheMachine posted...

The strike price being so crazy far from where it's at?

Yeah, this.

I think we all agree that GME is not "actually worth" $100 a share. And there are probably a variety of schools of thought on what a "fair" evaluation of their worth "should" be based upon the direction the company is heading. And you could make an argument that it's a dying business that can't possibly survive the pandemic, and maybe it is and maybe it wont. But as vaccines continue to rollout I think it's fair to imagine that retail companies like GME will if anything see a bump in the coming months. In the case of GME that's a bump relative to its "real" evaluation, we have to almost disregard where it's at now.

GME was below $5 from July 2019 to August 2020. Unless the company goes under I don't see it hitting that level again by november.

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StartTheMachine posted...

What calls are you selling? So you're basically just looking for buyers hoping to get lucky for a huge in the money call, but realistically it's probably just going to trade sideways

I have 1400 shares

I sold the right to buy those 1400 shares from me expiration next Friday for $11 a pop for $1700

If it rockets way past $11 that sucks for me but if it goes sideways or down I get $1700 for nothing.

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Keep in mind GME has had a huge catalyst in Ryan Cohen becoming a large shareholder (I think the largest single shareholder) and joining the board. He has been very active in demanding that the GME board transition the company into a mostly online business for months, and now they've put him on the board so it is likely they are going to do just that. While the transition hasn't happened much yet, the market is usually willing to pay quite a lot for potential.

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Lopen posted...

I have 1400 shares

I sold the right to buy those 1400 shares from me expiration next Friday for $11 a pop for $1700

If it rockets way past $11 that sucks for me but if it goes sideways or down I get $1700 for nothing.

Gotcha, this makes a lot of sense.

Man AMC is going for once finally on the day I sell. Glad I bought ENZC becaude currently seeing almost the same gains aw yeah

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I don't want to make anyone else do labor for me but Google has SUCKED at explaining puts and calls. Is there a link any of you have with a solid explanation for my idiot ass

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And like Robinhood's browser UI doesn't appear to even give me those options. Fidelity probably would but again I do not understand it even remotely.

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ExThaNemesis posted...

I don't want to make anyone else do labor for me but Google has SUCKED at explaining puts and calls. Is there a link any of you have with a solid explanation for my idiot ass

It's fucking confusing man. I've read posts here about options trading multiple times, think I understand it and it's always more complex than it is. Why can't it just be puts = go down calls = go up

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I feel bad that I betrayed AMC during her time of need

But I'll buy the dip

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Options trading is hard because it's a zero sum game. Winners are taking money directly from losers. By contrast, investing in stocks is a positive-sum game because there is a real business there that is generating value.

You wouldn't play poker for high stakes after just learning the rules and I think it's a good idea to treat options the same way.

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also WSB is dangerously flirting with getting shut down. A lot of posters on there telling people to buy at this time or that. Pretty sure that's extremely illegal!

Just watched a video on Calls and Puts and I sitll don't fucking understand

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red sox 777 posted...

Options trading is hard because it's a zero sum game. Winners are taking money directly from losers. By contrast, investing in stocks is a positive-sum game because there is a real business there that is generating value.

You wouldn't play poker for high stakes after just learning the rules and I think it's a good idea to treat options the same way.

Well the only way I learned the market was dipping my toes in. And buying calls and covered calls the same way. But I've only ever done that for stocks that I'm long in and ones that aren't really volatile at all. Sooo...I assumed buying puts was basically the same thing except you're obviously betting against the stock, and I didn't realize that when the Implied Volatility value goes down puts lower in value too. I'm still confused about what strategy to use where but I think I actually grasp it enough that I can put it together if I had slept recently.

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StartTheMachine posted...

Well the only way I learned the market was dipping my toes in. And buying calls and covered calls the same way. But I've only ever done that for stocks that I'm long in and ones that aren't really volatile at all. Sooo...I assumed buying puts was basically the same thing except you're obviously betting against the stock, and I didn't realize that when the Implied Volatility value goes down puts lower in value too. I'm still confused about what strategy to use where but I think I actually grasp it enough that I can put it together if I had slept recently.

Yeah, sometimes these things can only be learned by experience, but when you are learning, you don't need to do it with too much money. Raise your stakes as you get better at it.

The nice thing about straight stocks is anyone can make some money in it without much effort or skill at all, provided you are willing to hold long term and aren't significantly unlucky. That's because the long run direction of the stock market is higher.

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red sox 777 posted...

Yeah, sometimes these things can only be learned by experience, but when you are learning, you don't need to do it with too much money. Raise your stakes as you get better at it.

The nice thing about straight stocks is anyone can make some money in it without much effort or skill at all, provided you are willing to hold long term and aren't significantly unlucky. That's because the long run direction of the stock market is higher.

Yeah, I did paper trade calls first before I ever actually did them with real money (though just buying stocks, I went right to that). They seemed super easy and I had huge paper wins so I was all on board! Puts for some reason always confused me with like should they get to the strike price, ideally if they get to the strike price it's a stock you want to own anyway, etc. Calls it just feels more like a regular stock in the sense that you want to see the asset you bought contracts for go up

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StartTheMachine posted...

I didn't realize that when the Implied Volatility value goes down puts lower in value too

FYI this phenomenon isn't localized to puts. In fact, I think the Vega for calls and puts are the same for a given strike.

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I want to sell covered calls on my 200 AMC shares, my cost basis is $12, $1.5 premium to sell at $13 next week would go a long way towards digging me out of my hole

BUT MY BROKER WANTS ME TO UPLOAD A SIGNED AGREEMENT TO ENABLE THIS NOOOOO

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I don't have a guide but I know how they work and I'll try to help people understand.

Here's the super dumbed down version-- you shouldn't ever buy an option if you can't at least imagine the price going above or below your target number. Volatility is weird and you don't want to play games with it if you can avoid it (unless you're selling a covered call or put, in which case it's only your friend). Selling is almost more simple as long as you never sell naked and don't ever buy your contract back if it's not in the green, but I'll keep it to buying for now.

Call = goes up
Put = goes down
Expiration = good until date-- if it doesn't end above your call or below your put the contract won't likely have any value
Strike = The price your contract is used at. This is what you're buying at. For instance $15 call or whatever

TARGET NUMBER = So rule I use is take the strike and add the price of the contract to that (or subtract the price of the contract for a put). For example with blur's case he'd be aiming at Gamestop to fall below $4.38 ($5 - $0.62 contract price). In the case of my AMC calls I'd be aiming for AMC to get above $13.25 ($13 + $0.25 contract price).

Now as for why my contract costs such and his costs such, there's a lot of wacky underlying math that you don't need to know, but if the price of the stock moves more the price of the contract goes up is the gist. Really though you just need to know what your target price is, and what the expiration of the contract is. If you don't think you can reach those, then don't play the game. That's how you lose. The underlying Math will screw you. You should always go in with the idea that your contract could reach your target price before it expires. If it goes green beforehand, definitely sell some of them if you have multiples to remove your risk, don't hold, but don't place some super far out bet EXPECTING it to go green beforehand, because it won't necessarily ever.

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ExThaNemesis posted...

Just watched a video on Calls and Puts and I sitll don't fucking understand

I'm still learning myself but this is my impression.

Scenario 1: Selling a Call
Sub-Title: ExTha has stock and wants to cover his ass.

You have 100 shares of ABC that you bought for $10.
I believe those shares are going to go up. So I pay you $1 per share for the option to buy all 100 shares for $12 apiece. You have now essentially only paid $9 per stock due to the premium you collected from me.

If the stock is above $12 then I buy the stock from you for that price so you will receive the $100 premium ($1 per share) and the $1200 buyout, and thus earn $300 profit from your original $1000 investment.

If the stock is below $12 then you still have the shares and you still kept the $100 premium. I am the big loser in that scenario because I paid $100 and got nothing. (well not "nothing". I got a form of protection, because if the stock goes down the alternative is that I might have bought 100 shares myself that have now lost more value than I would have spent on the premium).

In the scenario of the price ending between 10.00 and 11.99 you are an extra winner, because your stock is worth more and you got my premium.
In the scenario of the price between 9.00 and 9.99 you are either tied or ahead even though your stock lost value.
And in the scenario of a price less than 9.00 you are behind, but less behind that you would have otherwise been.

Scenario 2: Buying a call.
Sub-Title: ExTha has faith in the stonks, but he doesn't want to bet the farm.

You can effectively just reverse the roles there. I have the 100 shares that I spent $1000 on, and you have a strong belief that this stock is going to the moon! So you pay me $1 a share for the right to buy my shares for the meager price of $12.

If the price is above $13 when you pay me $12 for it then you are ahead. If it's wayyyy above then you are wayyy ahead.

In the 12.01-12.99 range you are slightly behind because it didn't take off the way you wanted, but if it's $12.50 and you sell the stock immediately then you are only behind $50 for the missed opportunity.

Anything below 12 and you are out $100, but that might be preferable, because maybe the price is now $7 per share and by paying for the call rather than the shares themselves you avoided a more significant loss.

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At least that's my interpretation of calls, please correct me if I'm wrong. I imagine there is more complexity than just that, and if you have a call you bought that is "ahead of schedule" but hasn't yet struck you could make a quick buck by selling the call to someone else and recouping your premium plus a little extra.

I'll try Puts later, but those are more difficult for me to wrap my brain around so far.

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The wacky underlying math is actually the only part of it that I understand, the theory was part of my studies years ago. In practice is where I struggle, personally!

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So I did finally watch a video I understood that used a home-buyer example. Tell me if I'm misunderstanding but.

You're looking to purchase a house in a housing development. You can buy a call option to buy the house from the developer at $400,000. You need to pay a premium to the developer (or down payment on the house) of $20,000 to lock in your contract. The time frame can be for however, we'll use three years.

Now say, two years in and everything looks grand and zoning gets approved. The actual price of the house is now $600,000, but you exercise your option and buy it for $400,000 like your contract was agreed upon.

So to put that in a GME example... you buy a call option for GME to go to $150 and set the date for idk, Friday?

Say we rocket to $300 a share again. When you exercise your contract, you get the agreed upon shares for $150.

In either case the seller/broker keeps your premium.

Am I way off base here?

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I actually understand the Math too but you should never game the Math itself. That just sounds like a terrible idea to me.

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Forceful_Dragon posted...

At least that's my interpretation of calls, please correct me if I'm wrong. I imagine there is more complexity than just that, and if you have a call you bought that is "ahead of schedule" but hasn't yet struck you could make a quick buck by selling the call to someone else and recouping your premium plus a little extra.

I'll try Puts later, but those are more difficult for me to wrap my brain around so far.

That made it make even more sense to me. Thanks for the explanation.

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Peace___Frog posted...

The wacky underlying math is actually the only part of it that I understand, the theory was part of my studies years ago. In practice is where I struggle, personally!

Same tbh. Studied options pricing in college, but never actually trade options. Weren't you also studying to be an actuary at one point?

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Oh yeah. I ditched that in favor of just normal ass finance. Exam C was honestly too much for me. More in sales support & reporting these days.

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My Sony stock is giving me such a chubb today

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Word -- Exam C was ass.

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ExThaNemesis posted...

So I did finally watch a video I understood that used a home-buyer example. Tell me if I'm misunderstanding but.

You're looking to purchase a house in a housing development. You can buy a call option to buy the house from the developer at $400,000. You need to pay a premium to the developer (or down payment on the house) of $20,000 to lock in your contract. The time frame can be for however, we'll use three years.

Now say, two years in and everything looks grand and zoning gets approved. The actual price of the house is now $600,000, but you exercise your option and buy it for $400,000 like your contract was agreed upon.

So to put that in a GME example... you buy a call option for GME to go to $150 and set the date for idk, Friday?

Say we rocket to $300 a share again. When you exercise your contract, you get the agreed upon shares for $150.

In either case the seller/broker keeps your premium.

Am I way off base here?

That's exactly right.

So effectively your contract would be worth ($300 - $150 x 100) or $15000 at expiration should this happen-- you don't actually have to exercise, you can sell, and you can do so at any time. And this is why I say you take the price of the contract into the math. If say that contract costs you $3000 up front you should not buy the contract unless you're dead certain that the stock price can reach $180 by some point before expiration.

Now keep in mind if it's $180 at any point the contract value will be at minimum $3000 so you'll break even at worst, but that say if you bought the contract when GME was priced $100, getting to $125 (halfway there) does not mean that the contract is worth $1500. It could be worth more or less depending on how far you are from expiration and how volatile the stock has been. You're only guaranteed money if the stock price is above your strike. If it's below, yeah it could be higher or lower than what you paid but don't screw with it-- sell some to control risk but don't buy with the intent to game that.

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CaptainOfCrush posted...

My Sony stock is giving me such a chubb today

so good! I dont have any but was thinking of recommending it yesterday when green gravy asked for recs

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Lopen posted...

That's exactly right.

So effectively your contract would be worth ($300 - $150 x 100) or $15000 at expiration should this happen-- you don't actually have to exercise, you can sell, and you can do so at any time. And this is why I say you take the price of the contract into the math. If say that contract costs you $3000 up front you should not buy the contract unless you're dead certain that the stock price can reach $180 by some point before expiration.

Now keep in mind if it's $180 at any point the contract value will be at minimum $3000 so you'll break even at worst, but that say if you bought the contract when GME was priced $100, getting to $125 (halfway there) does not mean that the contract is worth $1500. It could be worth more or less depending on how far you are from expiration and how volatile the stock has been. You're only guaranteed money if the stock price is above your strike. If it's below, yeah it could be higher or lower than what you paid but don't screw with it-- sell some to control risk but don't buy with the intent to game that.

What do you mean by "sell some to control risk"?


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Lopen posted...

That's exactly right.

So effectively your contract would be worth ($300 - $150 x 100) or $15000 at expiration should this happen-- you don't actually have to exercise, you can sell, and you can do so at any time. And this is why I say you take the price of the contract into the math. If say that contract costs you $3000 up front you should not buy the contract unless you're dead certain that the stock price can reach $180 by some point before expiration.

Now keep in mind if it's $180 at any point the contract value will be at minimum $3000 so you'll break even at worst, but that say if you bought the contract when GME was priced $100, getting to $125 (halfway there) does not mean that the contract is worth $1500. It could be worth more or less depending on how far you are from expiration and how volatile the stock has been. You're only guaranteed money if the stock price is above your strike. If it's below, yeah it could be higher or lower than what you paid but don't screw with it-- sell some to control risk but don't buy with the intent to game that.

Yeah, that's where it gets messy. It helps the have an underlying understanding of the agreement itself that was being made, but the way they are being used it isn't always as simple as "You make this agreement and the agreement either does or does not 'strike'". The agreement itself might change hands several times before it expires.

hell maybe you bought a LOT of calls with a strike of $12 for a far off date and now it's 1 week away and the price is at 11.9. It's near the strike point and the strike seems likely, but it's not guaranteed. So you might sell off a portion of your calls to recoup a portion of your premiums and reduce the chance that all the calls expire without striking. Or to take it a step further you might sell *all* your calls, because while you were waiting and waiting and the stock didn't take off the way you wanted it to you decide it would be better to have some money back for those premiums you spent, but you aren't convinced that stock will even hold it's value even if it manages to barely strike in time. Stuff like that.

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ExThaNemesis posted...

What do you mean by "sell some to control risk"?

I think he means something like what I just said.

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Well I'm talking more if you had multiple contracts, though with single contracts it can work too

Say for example you bought a bunch of $500 calls on GME instead of a $150 one, because you had reasonable confidence it'd get above $500. Say those ran you I don't know, $100 each, and you bought 30 of them.

If it runs to $300 in an hour, and the price becomes $200 each, you'd ideally want to sell half of them then, even if you're sure it's going to get above $500, because you could be on pace for $500 and still miss because people profit take.

Again you'd never buy with the intent to just hope the math goes your way on the volatility, but if it does, take the money, at least some.

With one contract, you might consider selling it if it doubles in value a day after you bought it even if it can give you 5x value because you're unlikely to be that right the whole time-- you can always rebuy the contract with some of your profits later.

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I don't have the heart for day trading volatility at all

I bought Gamestop at $94 today hoping it would go back up over $100 again, and watched it go down and up around it a little and saw it inching upward and just decided to sell at $96. Then DFV tweeted and the price went up to $102

In my head I expected this to happen but my heart just couldn't hold

I don't blink at all about variations when I have a bull hypothesis in general but trying to take advantage of volatilities throughout the day feels very different. I don't think this is where my future lies.

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I'm just so mad at myself for falling into this when my Crypto plays, ETH and Cardano, were EXTREMELY solid and I ended up being 100% right on them both but I pulled out to try and make a quick buck on GameStop and ended up embroiled in a whole movement.

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Extha - it's a good lesson sure, but overall, this topic has had some pretty great success.

Some of us got burned on GNUS/TLRD/LK last year but overall I think we averaged like a 50% return.

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