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  • Avatar chrisg202 
    Participant
    Status: Physician
    Posts: 63
    Joined: 01/16/2016

    If anyone here is selling options:
    What is your return rate?
    What books you recommend to learn more about options?
    Are you selling stock or ETFs?
    Any word of wisdom is appreciated

    #227868 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    Be very very careful. You will do well for a while, your rate of return will depend upon your particular strategy and how risky you are being. One day you will lose a lot, likely more than you ever made.

    Hard to say without knowing the strategy you’re thinking.

    #227885 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2477
    Joined: 01/03/2017

    My words of wisdom is don’t. If, for whatever reason, you decide this is something you’re doing I would again encourage you not to.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #227886 Reply
    Liked by Lordosis, Peds
    Avatar chrisg202 
    Participant
    Status: Physician
    Posts: 63
    Joined: 01/16/2016

    Be very very careful. You will do well for a while, your rate of return will depend upon your particular strategy and how risky you are being. One day you will lose a lot, likely more than you ever made.

    Hard to say without knowing the strategy you’re thinking.

    Click to expand…

    Thank you

    I know you are into it… do you mind sharing your strategy and your ROI? I’m still exploring it and curious to learn more about it “Beginner”

    #227889 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    Be very very careful. You will do well for a while, your rate of return will depend upon your particular strategy and how risky you are being. One day you will lose a lot, likely more than you ever made.

    Hard to say without knowing the strategy you’re thinking.

    Click to expand…

    Thank you

    I know you are into it… do you mind sharing your strategy and your ROI? I’m still exploring it and curious to learn more about it “Beginner”

    Click to expand…

    My strategy is to try to avoid it as much as possible. I dont do any kind of undefined risk trades, that is selling puts or calls without them being a spread. The premium one used to get from options has contracted so much as to make it pretty worthless, and even so much so that it at times makes it better to buy it than sell it (due to things like pensions etc…doing large price indiscriminate over/underwrites).

    The safest ways are cash secured puts on things you want to own (this is what you think before it blows through your price point) and covered calls. Everything is defined but as usual has a cost. You cant do anything with the cash and you lose your shares at whatever price you sold, which usually means you missed a large run up.

    Indexes are best as they are more liquid. Stay away from formulaic or get rich books they guarantee a large blowup. Almost all of the strategies have you selling tail risk, and this can work for a long time (decades even) before it blows up spectacularly. This happened multiple times the last two years to large funds. Youre not even getting a good return for these premium wise, which means you’re taking on massive risk for nothing. If the probability is above zero, it will eventually happen.

    -volatility trading by bennett

    -trading volatility by sinclair

    -basic options and options for edge by sebastian

    My advice, dont do it. Not worth it.

    #227897 Reply
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 206
    Joined: 12/22/2018

    As long as you aren’t doing it with margin, there is nothing wrong with it. Every major brokerage has info explaining basic call and put options, and it is not to trick you, take your money, or increase commissions. Most investors with decent sized portfolios use them at least minimally. This board is a bit of an exception. Index options are the simplest, but a lot of the US ones are fairly expensive (per share)… eg, total market index ITOT is a third the cost per share but less liquid for options than VTI…. and 500 indexes like SPY and VOO and IVV are all relatively liquid but pretty spendy to get a contract, or multiple (minimum of SPY to sell a 1 contract covered call costs you $30k or so right now). The foreign ones like EEM and VWO are pretty affordable, but you need to know those markets to have the best chance on them. You can do options with stocks or ETFs, depends on your preference and goals and were you might have the most edge/experience. For many ppl, the best way to get started with options is to simply stick with that you know and have already: look at the equities you like and follow and generally own anyways; you can check the options chains and see if any of the lower priced (per share) ones have decent liquidity and options interest. Many will. Nobody is going to ruin their portfolio selling a covered call for 200 shares of Ford or Walmart or even VOO, lol.

    I agree options is a very wide topic. It’s like saying “real estate: good or bad?” or “ju jitsu: useful or not?” Basically, if you don’t like swimming, stay in the shallow end (index, 401 choices, etc). If you do like it, enjoy and go slow (single stocks, conservative covered options). Nobody would advise you to swim oceans or choppy rivers right after picking up the hobby, but this potential danger at high levels is what the naysayers hear whenver they see “options.” You might as well say “pit bulls” or “base jumping” to them. Likewise, a lot of the people bashing options also still prefer mutual funds and preach ETFs as more dangerous since the ETFs vary in price intra-day (apparently that’s a bad thing???).

    …Definitely start with covered calls on indexes or single equities and go from there. That strategy is a good income generator to learn and it’s actually less risk than buying and going long on index/fund/stock. People who don’t learn market income generation are the same people who, once retired, are often fooled into terrible annuities to gain cash flow, buying stocks or funds they don’t like or don’t understand just for dividend cash, or stuck constantly cashing out shares… cashing out in good markets or bad, unfortunately. Not only is it a good way to learn options, it is just plain useful as a trickle cash flow for anyone with substantial money in the stock market. Generally, covered calls are much easier and lower variance than covered puts are much easier than buying calls much easier than buying puts much much much less disaster potential than you get with naked/margin account options and shorts (I agree “don’t do it” on that last set of uncovered positions).

    The key is simply to buy things you are happy to be long on (don’t buy sketchy stuff just to sell options on it) and to set your covered call or put prices where you feel it to be win/win. You will make money on them every time (unless you can’t find a price you like and don’t sell the contracts), but the only question is if you’re making enough that you weren’t leaving more money on the table versus just being long on the stock. Return rate is impossible to discuss on something that is primarily skill dependent and takes years to learn and consistent patience and discipline to do well at. If you just sell calls or puts on everything and anything for the sake of selling calls or puts and do it every month no matter what the price is, you will likely fail to gain as much as you could’ve (which is not the same as losing… but still not optimal). Two people could own the same 500 shares of PG, and if both sold calls all year, one might make 15% and the other makes 2%… while the long holders of PG might have made 8% TR, get it? The strike prices and timespans do matter.

    Baseball is the best analogy I’ve found: Call buyers are gambling a bit and swinging hard for home runs, and their pitchers throw knuckleballs and walk a lot of batters. Contrary, call sellers are playing it safe, they hit for contact and are comfortable hitting singles which gets about 3 runs per game, so their success or failure comes mainly in skill of pitching. Think of it as old school AL vs NL if you like. There will be a ton of strikeouts and foul balls and walks and errors by the aggressive guys, and the conservative sellers will win most games 3-1, 3-0, 3-2, etc. However, it is not that simple. Those buyers are generally not incompetent retards either… they will succeed from time to time, even when facing a clever and skilled pitcher. When they win, they might win 8-3 or 12-3 or even 20-3 if you sold a call into QE and a hot market and you didn’t price it right. Again, while you don’t lose money as a call seller, it’s frustrating when you fail to gain a good amount. You have to have mental fortitude and expect good and a few bad stretches. The nice thing is that you can pause the options game whenever you want; you can simply choose not to sell calls or puts based on overall market conditions or upcoming QE or prices on the options being too low in your estimation or whatever. You can simply go long on the stock or index at that time… or even buy calls, if you want. Possibilities are good to have, if it’s your type of game.

    Due to price changes and the fact that a Tweet can ripple the market, you really don’t want to leave standing limit orders for covered calls out there for more than a day, so just use market or day limit orders. The covered puts can be left standing, but it is still best to do day orders or adjust frequent for max benefit. The profit with covered calls and puts is relatively small and incremental… but it really adds up if you are savvy. I generally sell the covered call and put options 3wks to 3mo out (usually on shorter end of that) and set it where I’m fine making 3% or 10% or whatever on that deal if it’s accepted. It is also usually best not to sell calls (or puts) whose timespan includes a QE announcement call… although I will admit I do that sometimes if the payoff is rich enough that I view it as win/win for me. It is not something you would be wise to try early on. QE are a non-issue if selling calls on indexes, of course, so that is an advantage to them. You can sell SPY or EEM calls every week with no problems… if you wanted to. You can also avoid ex-divi date timespans for your covered puts and maybe covered calls, but it’s not as critical. It is a good thing to be keeping track of your QE and ex- dates of stocks you own anyways, though… even if you are simply going long with no use of options, you want to understand their major movements. OTM calls or puts are easiest, ATM are pretty easy also, but ITM calls can function almost like buying puts and takes a bit more thinking (yet they may be one of your only options for decent gains selling covered calls in a bear market).

    …unfortunately, this is about the worst place to discuss this stuff and gain ideas. You will get a lot of “don’t do it” and “bad idea” from people who just index and don’t even understand options or utilize them. Like most discussions, most of the biggest critics have probably never done it. It would be like walking into a catholic church and asking for tips on buddhist detachment or muslim Ramadan fasting. Don’t be afraid of what you don’t understand just because many other people are. “Your most expensive advice is the free advice you receive… from your financially struggling friends and relatives.” I’m not saying anyone doesn’t mean well or is necessarily struggling, but it is just that you will get a lot of knee-jerk answers regarding things they’ve only heard rumors about and immediately chose not to employ in their own strategy. You have to consider the source. That dogma of instant dismissal does you no good and stifles your thought process. It’s best to make up your own mind. There are books, free articles on options basics from every major brokerage and investment site, Youtube vids, etc. Just learn about it, go slow, and see if you like it. FEAR = fail early and responsibly. This goes for single stock, options, leveraged funds, futures, forex, or whatever… it is all highly dangerous if you don’t use it for defined goals or you don’t understand it, but the blanket dismissals are usually fear of the unknown. Whether you decide to stick with it or not and whether you make your returns a bit better with options or you leave a bit of money on the table, you will learn and grow as an investor regardless. GL

    "Hmm, that sounds risky." - motto of the middle class

    #227925 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 428
    Joined: 06/12/2017

    Don’t! Just don’t!

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #227991 Reply
    Avatar chrisg202 
    Participant
    Status: Physician
    Posts: 63
    Joined: 01/16/2016

    As long as you aren’t doing it with margin, there is nothing wrong with it. Every major brokerage has info explaining basic call and put options, and it is not to trick you, take your money, or increase commissions. Most investors with decent sized portfolios use them at least minimally. This board is a bit of an exception. Index options are the simplest, but a lot of the US ones are fairly expensive (per share)… eg, total market index ITOT is a third the cost per share but less liquid for options than VTI…. and 500 indexes like SPY and VOO and IVV are all relatively liquid but pretty spendy to get a contract, or multiple (minimum of SPY to sell a 1 contract covered call costs you $30k or so right now). The foreign ones like EEM and VWO are pretty affordable, but you need to know those markets to have the best chance on them. You can do options with stocks or ETFs, depends on your preference and goals and were you might have the most edge/experience. For many ppl, the best way to get started with options is to simply stick with that you know and have already: look at the equities you like and follow and generally own anyways; you can check the options chains and see if any of the lower priced (per share) ones have decent liquidity and options interest. Many will. Nobody is going to ruin their portfolio selling a covered call for 200 shares of Ford or Walmart or even VOO, lol.

    I agree options is a very wide topic. It’s like saying “real estate: good or bad?” or “ju jitsu: useful or not?” Basically, if you don’t like swimming, stay in the shallow end (index, 401 choices, etc). If you do like it, enjoy and go slow (single stocks, conservative covered options). Nobody would advise you to swim oceans or choppy rivers right after picking up the hobby, but this potential danger at high levels is what the naysayers hear whenver they see “options.” You might as well say “pit bulls” or “base jumping” to them. Likewise, a lot of the people bashing options also still prefer mutual funds and preach ETFs as more dangerous since the ETFs vary in price intra-day (apparently that’s a bad thing???).

    …Definitely start with covered calls on indexes or single equities and go from there. That strategy is a good income generator to learn and it’s actually less risk than buying and going long on index/fund/stock. People who don’t learn market income generation are the same people who, once retired, are often fooled into terrible annuities to gain cash flow, buying stocks or funds they don’t like or don’t understand just for dividend cash, or stuck constantly cashing out shares… cashing out in good markets or bad, unfortunately. Not only is it a good way to learn options, it is just plain useful as a trickle cash flow for anyone with substantial money in the stock market. Generally, covered calls are much easier and lower variance than covered puts are much easier than buying calls much easier than buying puts much much much less disaster potential than you get with naked/margin account options and shorts (I agree “don’t do it” on that last set of uncovered positions).

    The key is simply to buy things you are happy to be long on (don’t buy sketchy stuff just to sell options on it) and to set your covered call or put prices where you feel it to be win/win. You will make money on them every time (unless you can’t find a price you like and don’t sell the contracts), but the only question is if you’re making enough that you weren’t leaving more money on the table versus just being long on the stock. Return rate is impossible to discuss on something that is primarily skill dependent and takes years to learn and consistent patience and discipline to do well at. If you just sell calls or puts on everything and anything for the sake of selling calls or puts and do it every month no matter what the price is, you will likely fail to gain as much as you could’ve (which is not the same as losing… but still not optimal). Two people could own the same 500 shares of PG, and if both sold calls all year, one might make 15% and the other makes 2%… while the long holders of PG might have made 8% TR, get it? The strike prices and timespans do matter.

    Baseball is the best analogy I’ve found: Call buyers are gambling a bit and swinging hard for home runs, and their pitchers throw knuckleballs and walk a lot of batters. Contrary, call sellers are playing it safe, they hit for contact and are comfortable hitting singles which gets about 3 runs per game, so their success or failure comes mainly in skill of pitching. Think of it as old school AL vs NL if you like. There will be a ton of strikeouts and foul balls and walks and errors by the aggressive guys, and the conservative sellers will win most games 3-1, 3-0, 3-2, etc. However, it is not that simple. Those buyers are generally not incompetent retards either… they will succeed from time to time, even when facing a clever and skilled pitcher. When they win, they might win 8-3 or 12-3 or even 20-3 if you sold a call into QE and a hot market and you didn’t price it right. Again, while you don’t lose money as a call seller, it’s frustrating when you fail to gain a good amount. You have to have mental fortitude and expect good and a few bad stretches. The nice thing is that you can pause the options game whenever you want; you can simply choose not to sell calls or puts based on overall market conditions or upcoming QE or prices on the options being too low in your estimation or whatever. You can simply go long on the stock or index at that time… or even buy calls, if you want. Possibilities are good to have, if it’s your type of game.

    Due to price changes and the fact that a Tweet can ripple the market, you really don’t want to leave standing limit orders for covered calls out there for more than a day, so just use market or day limit orders. The covered puts can be left standing, but it is still best to do day orders or adjust frequent for max benefit. The profit with covered calls and puts is relatively small and incremental… but it really adds up if you are savvy. I generally sell the covered call and put options 3wks to 3mo out (usually on shorter end of that) and set it where I’m fine making 3% or 10% or whatever on that deal if it’s accepted. It is also usually best not to sell calls (or puts) whose timespan includes a QE announcement call… although I will admit I do that sometimes if the payoff is rich enough that I view it as win/win for me. It is not something you would be wise to try early on. QE are a non-issue if selling calls on indexes, of course, so that is an advantage to them. You can sell SPY or EEM calls every week with no problems… if you wanted to. You can also avoid ex-divi date timespans for your covered puts and maybe covered calls, but it’s not as critical. It is a good thing to be keeping track of your QE and ex- dates of stocks you own anyways, though… even if you are simply going long with no use of options, you want to understand their major movements. OTM calls or puts are easiest, ATM are pretty easy also, but ITM calls can function almost like buying puts and takes a bit more thinking (yet they may be one of your only options for decent gains selling covered calls in a bear market).

    …unfortunately, this is about the worst place to discuss this stuff and gain ideas. You will get a lot of “don’t do it” and “bad idea” from people who just index and don’t even understand options or utilize them. Like most discussions, most of the biggest critics have probably never done it. It would be like walking into a catholic church and asking for tips on buddhist detachment or muslim Ramadan fasting. Don’t be afraid of what you don’t understand just because many other people are. “Your most expensive advice is the free advice you receive… from your financially struggling friends and relatives.” I’m not saying anyone doesn’t mean well or is necessarily struggling, but it is just that you will get a lot of knee-jerk answers regarding things they’ve only heard rumors about and immediately chose not to employ in their own strategy. You have to consider the source. That dogma of instant dismissal does you no good and stifles your thought process. It’s best to make up your own mind. There are books, free articles on options basics from every major brokerage and investment site, Youtube vids, etc. Just learn about it, go slow, and see if you like it. FEAR = fail early and responsibly. This goes for single stock, options, leveraged funds, futures, forex, or whatever… it is all highly dangerous if you don’t use it for defined goals or you don’t understand it, but the blanket dismissals are usually fear of the unknown. Whether you decide to stick with it or not and whether you make your returns a bit better with options or you leave a bit of money on the table, you will learn and grow as an investor regardless. GL

    Click to expand…

    Thanks a tons for your detailed response

    #228145 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    “Don’t be afraid of what you don’t understand”.
    This advice seems contrary to almost any investment philosophy or book. KNOW WHAT YOU OWN.

    Options have a purpose, leverage. Small investment either increases or decreases risk. The risk is a function of price and time. That is a real value and can be measured. Professionals measure this instantaneously and attempt to accomplish goals. https://www.investopedia.com/trading/using-the-greeks-to-understand-options/

    A retail investor can use options effectively.
    Buying a put: This is “insurance” of downside loss.
    Stock at $100, buy put at $95, cost of option and limit loss to $5. Insurance costs you money but protects you from larger losses.
    Selling a covered call: stock at $100, sell call at $105, collect the option price and limit your gain.
    These are techniques for time. The price premium deterioration over time accelerated and disappears.

    Now if you want to become an options trader as opposed to an investor, that is a completely different animal. Just like day trading stocks is different than investing. The “sharks” have much lower trading costs from either direct access or volume. If you understand the math and develop your trading skills and systems it might work. Odds are against “trading success “.

    Just “looking” on a screen at option prices and picking one the “looks good” is basically gambling. Sometimes you win and sometimes you lose. Good luck.

    #228172 Reply
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 881
    Joined: 03/18/2017

    I just don’t see the point in this stuff especially as a doc. Have plenty of money to just be appropriately aggressive and end up with a significant chunk in 20-30years

    #228178 Reply
    Liked by Lordosis, Zaphod, Tim
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    @panscan,
    The key point you made was “appropriate”.
    AA is a better way of managing risk from an investment standpoint. One thing not mentioned, the SEC has required your broker to “approve” your account for options trading and the strategies.
    https://www.sec.gov/oiea/investor-alerts-bulletins/ib_openingoptionsaccount.html

    If a broker gave advice “give it a try”, I would recommend changing brokers. Limited use can make a lot of sense, that’s not the same as playing the options game.

    #228183 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1897
    Joined: 01/15/2017

    NOT for retirement funding mechanism or choices.

    Strictly for your ‘fun’/speculation game account.

    That said —  safer options   covered call.    You’re owning the stock and predict a certain growth and insuring that growth with options.– hence CAPPING your top end.   Counter argument, if you’re spending time to ID a good stock, why cap the potential?    ie – not worth your time/energy beyond 3 fund strategy and your fun account.

    Naked Put with HUGE spread.   This is where a lot of folk try it out; say lots of easy money,— until the bottom really does fall out.  lots of folk doing this with Tesla.  keep fanning Tesla fears, but hoping never happens and keep all the premiums.

     

    Unless you like watching the ticker on your phone — stay away

    #228184 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2582
    Joined: 09/18/2018

    StarTrekDoc,
    Many strategies exist. You chose growth stocks. Dividend stocks are another strategy, especially dividend growth stocks with stable rather than growth (think dividend aristocrats or champions. The dividend yield is enhanced by income from the covered call. You bought it for the stable income stream and used the asset to enhance the yield. “Safe” stable stock if there is such a thing. Different investment style. Please note, better was not used. It may suit a person’s needs.

    1. We start with strong dividend stocks. There are many pitfalls at this step, starting with screening for the highest yield. That is a good way to lose your nest egg, as I explained in the article. We find strong stocks with reasonable yield.

    2. We sell calls against our stocks. This is a very safe option strategy, although choosing the right call and adjusting positions takes some skill. This step adds a lot to the yield.

    3. We use our experience in timing the options market – both when to start a position and when to sell the calls.

    #228189 Reply
    Liked by PhotonsRGR8
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    NOT for retirement funding mechanism or choices.

    Strictly for your ‘fun’/speculation game account.

    That said —  safer options   covered call.    You’re owning the stock and predict a certain growth and insuring that growth with options.– hence CAPPING your top end.   Counter argument, if you’re spending time to ID a good stock, why cap the potential?    ie – not worth your time/energy beyond 3 fund strategy and your fun account.

    Naked Put with HUGE spread.   This is where a lot of folk try it out; say lots of easy money,— until the bottom really does fall out.  lots of folk doing this with Tesla.  keep fanning Tesla fears, but hoping never happens and keep all the premiums.

     

    Unless you like watching the ticker on your phone — stay away

    Click to expand…

    Has been a winning strategy in any very high IV stock. I would suggest those people reevaluate their positions as there is a much larger than we like to acknowledge amount of uncertainty about what is actually happening in any company, good or bad. And you dont want to be surprised like that.

    Also, just because an option trade shows you a max loss that may be below your required margin levels, that does not mean options trade sanely or things dont have jumps and moments of true dislocation (these usually arent tradeable, like a spread for more than your loss, I’ve tried). Even though they arent necessarily trade able, it will trigger the broker to liquidate your position, which occurs at the absolute worst time, somewhat by definition. One leg may respond to price change and the other not so much and all the sudden you show a massive loss, not fun.

    #228199 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1272
    Joined: 03/27/2017

    Options trading?  How pedestrian.  What you really want to do if you want to lose a lot of money is get into futures contracts!

    #228790 Reply
    Liked by Lordosis, Zaphod, Peds

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