Buy / Write

viruscore1 · Nov 25, 2017

Anyone use buy / write? Here's an example on GPC. Month options, between ex-dividend date. The 1st spread was placed as 1 single buy/write spread. The second spread was place as buy stock, and then sell call as 2 separate transactions. Notice the second spread is setup with better price.

This is a live transaction. Here's what it looks like in my account. The profit will come from call premium, dividend and capital gains when assigned. If not assigned, i'll sell calls again.

If my other post is an example. Let the fun begin. Keep in mind GPC is a dividend aristocrat currently trading below its 52 week mean.

I am aware there are better trades out there. But this example is simple buy/write to earn 7+% in approximately 4 weeks. I'm sure you hot shots out there could return 45% on 1 or 2 contracts, go ahead and post your "live" trade on another thread and show us how it's done.

sysdevel99 · Nov 25, 2017

Not going to burst your bubble - but how again do you get to 7% in 4 weeks?

The margin for the trade (unleveraged) is based on your stock - since the call is covered there's no margin for the call. The stock margin is 500*86.8ish - so about 43k4 Assuming GPC doesn't go up or down and the calls expire worthless you make ~ 450 (let's assume you sold 5 contracts and got filled @ .90 in between the current .85/.95 bid ask).
Sure you can leverage it up and do many of those or include massive stock gains in your calculation but without any of that the return seems like it is closer to 1% rather than 7% for four weeks.

viruscore1 · Nov 25, 2017

sysdevel99 said:
Not going to burst your bubble - but how again do you get to 7% in 4 weeks?

The margin for the trade (unleveraged) is you stock - since the call is covered there's no margin for the call. The stock margin is 500*86.8ish - so about 43k4
Assuming it doesn't go up or down and the calls expire worthless you make ~ 450 (let's assume you sold 5 contracts and got filled @ .90 in between the .85/.95 bid ask).
Sure you can leverage it up and do many of those or include massive stock gains in your calculation but without any of that the return seems like this is closer to 1% rather than 7% for four weeks.

This is crude calc ...
(totalEarnings=(callPrem+div+capGains))/(stockPrice*qty/2(marginReq))
Plug in the numbers from my spreadsheet, it's all there.

sysdevel99 · Nov 25, 2017

lol - you're funny - that's the same math - difference is that you're using 2:1 regT margin (leverage) and you're assuming the rest of the "totalearnings" comes from your capGains. Assuming you don't have a crystal ball that told you the stock goes up and it just stays exactly where it is your gains are 2% with your leverage - or 1% if you do the same trade in a 401k.
If I were you I would take the dividend out of the formula cause the day the stock goes ex-div the stockprice will be reduced by the dividend - so it doesn't really change the math

viruscore1 · Nov 25, 2017

sysdevel99 said:
lol - you're funny - that's the same math - difference is that you're using 2:1 regT margin (leverage) and you're assuming the rest of the "totalearnings" comes from your capGains. Assuming you don't have a crystal ball that told you the stock goes up and it just stays exactly where it is your gains are 2% with your leverage - or 1% if you do the same trade in a 401k.

Like i said it's a live trade. Did you look at the average price mean reversion. It could earn 7+% if it moves 1 buck from current price. As you can see it is already showing profit.
I guess you only post your profitable trades using hindsight, lol ...

newwurldmn · Nov 25, 2017

It's unlikely you will earn both the dividend and the capital appreciation through the maturity.

sysdevel99 · Nov 25, 2017

lylec305 said:
It could earn 7+% if it moves 1 buck from current price.

If and Could support great arguments. Without that wishful thinking the return it's still just 1%.
Good luck on your trade though - seems like it's a great strategy. Let me try your thinking as well.
If it moves 5 bucks up from current price it could make 8% - hmm probably shouldn't have limited my upside.
If it moves 5 bucks down from current price .... shit - didn't think about that

viruscore1 · Nov 25, 2017

newwurldmn said:
It's unlikely you will earn both the dividend and the capital appreciation through the maturity.

Well, we'll know in about 3 weeks. The objective here is to put money to work and preserve capital. It's only 5 contracts...

viruscore1 · Nov 25, 2017

sysdevel99 said:
If and Could support great arguments. Without that wishful thinking the return it's still just 1%.
Good luck on your trade though - seems like it's a great strategy. Let me try your thinking as well.
If it moves 5 bucks up from current price it could make 8% - hmm probably shouldn't have limited my upside.
If it moves 5 bucks down from current price .... shit - didn't think about that

If it closes below my call strike price, i will be selling calls for the following month. I'll sell some otm puts if stock drops further. Fyi I always think of that. I guess you are not familiar with dividend aristocrats. GPC has consistently increased dividends for 25+ years. I don't mind holding onto GPC at these prices.
If you're calling for GPC to drop 5 bux, by all means take the opposing trade. Otherwise you have nothing. You know where i stand.

viruscore1 · Nov 25, 2017

sysdevel99 said:
lol - you're funny - that's the same math - difference is that you're using 2:1 regT margin (leverage) and you're assuming the rest of the "totalearnings" comes from your capGains. Assuming you don't have a crystal ball that told you the stock goes up and it just stays exactly where it is your gains are 2% with your leverage - or 1% if you do the same trade in a 401k.
If I were you I would take the dividend out of the formula cause the day the stock goes ex-div the stockprice will be reduced by the dividend - so it doesn't really change the math

All the income streams are there and i can check them off. I will remove them after the fact. I've sold multiple calls and puts, eventually I make all of them.