Are there advantages to selling calls at several strike prices?

[spy]

Buying a straddle is a combo; long call, long put. It does not involve “buying a call and selling a call.”

MsDawn’s pony kicked her in the head, #infinitegamma

Wait! You mean we can't just make stuff up as we go along?

Crap... I'm going to have to revisit my whole strategy now.

P.S. I'm pretty sure it was a unicorn, not a pony.

 

[TheDawn]

Straddles is a directionless play that you buy it when you are not sure which direction the underlying is going or not interested in trading in any particular direction for the underlying but you know the underlying is going to move a lot either up or down i.e. with high volatility. Buying a straddle involves buying a call + selling a call so you make money when the underlying makes a huge move in either direction. Selling straddles is the opposite, you expect the underlying not to move at all in either direction so you sell a put+ sell a call, earning premiums from selling both ways. If the stock ever moves either way beyond the strike of either the call or the put more than the premium price then you suffer losses.

Oh sorry @MathTeacher, I made a typo where I said "Buying a straddle involves buying a call + selling a call", I meant "buying a call + buying a put". Hope you saw that it was a typo because I went on to state that

so you make money when the underlying makes a huge move in either direction.

 

[TheDawn]

PS I thought that what I just did was to take out an "insurance policy" on my 500 shares of XOM

It's an insurance policy with capped claims. This is how you would need to think your covered call strategy as because when god forbid your stock goes down, you are only protected up until the premium that you have earned on the short call minus even the commission.

 

[TheDawn]

PS I bought 5 put contracts at a 111 strike price.
I own 500 shares,
So that is "equivalent" to owning 5 111C ?

Yes. It would help you to see this by drawing what's called a payoff diagram such as this: https://www2.poems.in.th/home/derivatives/en/options04.htm#:~:text=A Payoff diagram is a,options involved in the strategy. You draw all of your strategies even your long stock investment on the diagram and then you can see how the strategy evolves at different prices. Here is the payoff diagram for long stock+ long put i.e. a synthetic call. https://www.investopedia.com/terms/s/synthetic_call.asp. It's called a synthetic call because it's a call that's produced by several different strategies combined, i.e. "synthesized" by different strategies vs. buying a call outright. You can see the strike price of the synthetic call is exactly equal to the strike price of the put which is also the break-even point of the two strategies combined, the synthetic call.

It's really helpful to draw payoff diagrams of your strategies then you can have a clearer picture of how your strategies work in different price scenarios and it helps you to plan and create the most optimum strategy(ies) for your profit goal while being mindful of your risk tolerance or drawdown limit.

 

[destriero]

“Capped compensation” insurance policies? WTF is that analogy? Are you OK?

 

[destriero]

lol now MsDawn has edited this garbage to read, “capped claims.” MsDawn, in what other ways can you synthesize a long call?

 

[TheDawn]

Forget the greeks for now..

Carr before the horse

Where would you happily sell your XOM position.

Whatever price tou cone up with,look at that call strike..

Then calculate what percent of the stock price are you taking in by selli g the call..

if the volatility is low,you may very well say the premium collected is not worth giving up the upside,and/or the premium collected doesnt offer sufficient downside protection...

Show us exactly what you are thinking

I agree. Keep everything simple. All what options are is probabilities within a time limit. What's the probability that a particular strike(s) will be hit or not be hit by a certain time and how much I will make or lose when this(these) strike(s) is(are) hit or not be hit within that time frame. That's why I feel payout diagrams are really helpful because they really help you see what @taowave is saying above.

Whatever price tou cone up with,look at that call strike..

Then calculate what percent of the stock price are you taking in by selli g the call..

Analyze options trades from a profitability point of view keeping in mind their probabilities.

 

[easymon1]

my XOM

MT, sounds like you are mighty familiar with XOM.
In the past, how has XOM stock price moved relative to a 10% drop in crude oil price?

Maybe the wife would like to take a $100.00 flyer on OILD, lol
https://stockcharts.com/h-sc/ui?s=OILD

 

[destriero]

MsDawn: options are probabilities.

Cocaine is a drug -> aspirin is a drug -> therefore cocaine is aspirin.

 

[newwurldmn]

MsDawn: options are probabilities.

Cocaine is a drug -> aspirin is a drug -> therefore cocaine is aspirin.

when’s the last time I saw someone reference red heat? Must have been 1989.