And what happens if IBM drops to $50 per share by Jan 2022?
Bought Coca-Cola and Oracle today...Value investor
- Thread starter Cabin111
- Start date
And what happens if IBM drops to $50 per share by Jan 2022?
Yeah, and Amazon could be clubbing baby seals to lube their fulfillment centers. It's a gamble I am willing to take. I can always buy back the option and sell the stock.
So what you are basically saying is that your just made a completly zero risk trade. Free money?
I don't know options, which is why I always look for understanding. Since you will not answer it I'll tag @BKR88
Ahhh..When did I say it was zero risk?? I just don't buy very high flyers...Unless it's something like QQQ.
"...And what happens if IBM drops to $50 per share by Jan 2022?"
I'm just thinking of what can be worse-case scenarios. I was looking for numbers, not some postulation of Bezos clubbing baby seals for lube.
If the fundamentals are there, I hold...Even in a recession. If they don't hold, (lose major market share or drops 20% plus) I buy back option and sell. Not brain surgery...
It is for me. There are three specific people you can ask on here about how much I understand options. @destriero @vanzandt and @BlueWaterSailor . They will all tell you the same thing...No matter how hard I try to understand options, my brain will not click with them. It's like a mental block, or a mental defect.
You can look through my posting history, and you will see how I respond to options posts many times...Options people are crazy, or WTF is with options, etc. I am not trying to make fun or am trying to bait you. I seriously don't get them. Every little bit helps. But this was posted in the Stocks section of the forum, so I feel I have the liberty to ask. I usually stay out of the Options section of the forum where I do not belong. I saw this opportunity to ask a basic question about options in the stock section, and took it.
My brain for some reason cannot make sense of them, maybe because my brain is too linear to understand the 5D world of an option chain.
BWS has been most helpful in trying to show me the tables, and how it works, but I cannot wrap my brain around it yet.
So I ask you again...
What would be the worse-case scenario if IBM dropped to $50 per share by Jan 2022, with your current position?
I own 100 shares of IBM at $50...$5,000. worth of stock. If they have continued to pay their dividend during this time, I will also have $652. in dividends. I have also received my $800. (option money). The dividend and option money ($1,452.00) can be placed in a dividend stock fund (say earning 3%). It is a compounding effect...$1,452. X 3% = $43.56. So I do not just own the $5,000. in stock. I have made more. If I have held the stock I can option the Jan 24 $70. I may get $8. ($800.) for holding the stock again. Looking long term. Concerning IBM, most big companies want to go with proven companies. They don't want to gamble with unknowns for their data information. Does; Ford, ADM, Walmart want to go with a no name company or IBM?? Just my thoughts...
It took me years to understand options. I believe I am out of my league for most. Just do covered calls...Buy them back if necessary. I enjoy reading about them, but am too old to try things like butterfly spreads, iron condors. It leaves me guessing...
I am referring to this specific example, which you posted in this thread...
"...I bought 100 shares of IBM today. My brother in law suggested it. Picked it up at $106.59. Then I did a covered call at $8.00 for the Jan 22, $115."...
I am asking about your current position, not a hypothetical.
What happens if IBM drops to $50 by the time of your Jan 22 expiration?
This is the best answer I got regarding what happens if the stock RISES...
"...He sold the Jan 2022 115 Call for $800. (2022 ... not Jan 22, 2021)
If IBM price is 115 or higher at expiration on Jan 2022 then his shares will be sold for 115.
He paid $10,659 for the 100 shares and will receive $11,500 if called away.
His profit is $11,500-$10,659=$841 plus $800 (amount received for selling the call).
$1,641 profit on investment of $9,859 for 15 months for ROI of 16.6% plus dividend yield."
What happens if the IBM stock FALLS to $50 per share in this case?
If you cannot answer this question, then I will just know that options cannot be understood by me.
Wait, I think I got it. You got the 800 bux for selling the call, it expires worthless, and your stock is simply worth $50 per share, rather than the 107 you bought it for.