so cite a specific trade, using citibank options. if you're going to comment, back it up with numbers.
show me the money.
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- Thread starter BostonTrader339
- Start date
so cite a specific trade, using citibank options. if you're going to comment, back it up with numbers.
show me the money.
Quote from TRYKtrading:
but you can. by simply selling an OTM with only extrinsic value, you're locking in x% return per share every month, with no downside risk on the stock.
i've calculated it out the returns can be massive, and consistent, and compounding.
my point in bringing this up was to solicit other opinions, intelligent ones, so i could learn.
if possible, i'd like to keep the hyperbole to a minimum.
thanks.
How is there no downside risk in the stock?
I respect that everyone can have their own opinion but you're looking for several hundred % return in the stock by next year, from a company thats on the brink.
Quote from xflat2186:
How is there no downside risk in the stock?
I respect that everyone can have their own opinion but you're looking for several hundred % return in the stock by next year, from a company thats on the brink.
citibank is nowhere close to being on the brink. in fact, it is the strongest of any bank in the world now almost completely across the board, it's financial statement is healthier now than ever, and it has massive cash reserves from which to loan back out into the market, which is the next major stage of the recovery. $450B in fact.
the multiplier effect of even half that loaned out to business and consumers will be staggering.
no, i like citibank, a lot. you may not and that's your opinion, but when you take a $4 stock and break it down 4:1 on margin, doubling my money ever $1 it rises, i'm more than willing to that risk on writing covered calls well into the next two years.
Quote from TRYKtrading:
okay, so let me throw this out as well.
if 85%+ of all options contracts expire worthless, then the only logical way to use options is to capitalise on the extrinsic value.
It has been said many times on this forum that is simply not true
It is just as disheartening when a stock is covered and breaks thru resistance your profit is capped by the CC you wrote for a few cents premium. Many of my CC buyers were in the camp that did very well buying calls.
**when is the ideal time to sell a covered call?**
I use a method whereby I sell covered calls when the stock is near the top of the bollinger band range, using 1 or 2 strikes above th stock price. Bollinger bands are set up using a number of days and a number of standard deviations (usually 2) above the mean 20 day price. The theory is that over time numbers revert to the mean (go back down). If I do get called, I have been lucky enough to have an acceptible profit at assignment and usually can buy the stock back, or a replacement, at or less than the expiry price in a few days. If you are trading, though, you may just want to sell the stock at the top of the range instead of selling ccs.
I have gotten burned trying to sell CC's in a down market.
I have limited my gains selling CC's during a rebound.
CCs are a nice way to make a few extra bucks to sell the stock when it has reached or is nearing my target.
Out of the money calls are all extrinsic. I sell front month or second month if there is no prem. on the front month.
Good luck
Tom
Quote from TRYKtrading:
citibank is nowhere close to being on the brink. in fact, it is the strongest of any bank in the world now almost completely across the board, it's financial statement is healthier now than ever, and it has massive cash reserves from which to loan back out into the market, which is the next major stage of the recovery. $450B in fact.
the multiplier effect of even half that loaned out to business and consumers will be staggering.
no, i like citibank, a lot. you may not and that's your opinion, but when you take a $4 stock and break it down 4:1 on margin, doubling my money ever $1 it rises, i'm more than willing to that risk on writing covered calls well into the next two years.
I respect your opinion but like mine its just an opinion. I would hardly call C the strongest bank in the world and if you really believe there is no downside risk in the stock, I would suggest that purely on a statistical basis non opinionated there is always downside risk. There is a reason why the puts trade richer than the calls.
Quote from TRYKtrading:
but you can. by simply selling an OTM with only extrinsic value, you're locking in x% return per share every month, with no downside risk on the stock.
i've calculated it out the returns can be massive, and consistent, and compounding.
my point in bringing this up was to solicit other opinions, intelligent ones, so i could learn.
if possible, i'd like to keep the hyperbole to a minimum.
thanks.
If there were a smooth-continuous trajectory upwards, with the underlying always conveniently atm or just otm at expiry, it may be possible.
However, the reality of a non linear trajectory (even if the stock is in an uptrend) often intervenes to snatch real and potential $$$ straight off the bottom line.
At 5% per month we'd all just write CC's and retire rich in a couple of years.
Nice work if you can get it.
Quote from xflat2186:
I respect your opinion but like mine its just an opinion. I would hardly call C the strongest bank in the world and if you really believe there is no downside risk in the stock, I would suggest that purely on a statistical basis non opinionated there is always downside risk. There is a reason why the puts trade richer than the calls.
agreed.
i think citibank is the strongest bank in the world because it's backed by the wealthiest country in the world, or they'd have been allowed to fail.
even if the usa is technically bankrupt. but that's neither here nor there. this is about the stock, not politics.
the otm puts should trade equal to the otm calls, but you're right, they don't, but are very close. .10 is the difference between the NOV5P and NOV3C, but stock fluctuates .05-.10 at $4, so the arbitrage on that is pretty f'n thin unless you're doing massive blocks.
with volume at 400M shares at 3PM, someone is making a killing on that difference.
i'm still willing to bet that C has the upside potential at a significantly higher ratio to the downside, even though the percentages are inverted.
you're making a fundamental assessment when the purpose of this thread was to solicit suggestions on strategy.
Quote from TRYKtrading:
agreed.
i think citibank is the strongest bank in the world because it's backed by the wealthiest country in the world, or they'd have been allowed to fail.
even if the usa is technically bankrupt. but that's neither here nor there. this is about the stock, not politics.
the otm puts should trade equal to the otm calls, but you're right, they don't, but are very close. .10 is the difference between the NOV5P and NOV3C, but stock fluctuates .05-.10 at $4, so the arbitrage on that is pretty f'n thin unless you're doing massive blocks.
with volume at 400M shares at 3PM, someone is making a killing on that difference.
i'm still willing to bet that C has the upside potential at a significantly higher ratio to the downside, even though the percentages are inverted.
you're making a fundamental assessment when the purpose of this thread was to solicit suggestions on strategy.
Weâre both making fundamental assessments. They may in fact be forced to break up at some point in the future.
Technically the call and put equidistant from the at the money should NOT trade at the same price. In addition to that the OTM put / ITM call same strike will always trade at a higher volatility than an OTM call/ ITM put same strike since there is always a skew in IV. That skew is there for one darn good reason, there is always a probability, whether its tiny or not that the company will implode, or the CEO dies in a plane crash, or they get a Wells notice from the SEC or anything along those lines. That being the case there is always the existence of downside risk in the stock.
As far as buying and holding C and doing the covered write to generate monthly income, it can work but IMO there are far superior stocks you could find to implement that strategy with. The nature of a 4 dollar stock is such that it will trade at a high IV but the premium in real dollars is not all that high.
As far as Câs upside potential vs. its downside itâs not a real comparison since you can only lose 100% on an investment yet you could return an infinite amount.
If the stocks trading at 4 then you need to look at the NOV 3 put and NOV 5 call, which is the opposite of what you posted. There is NO pure arbitrage on those strikes whether the underlying is static it not.
Why would you indicate that 400 million shares means someone is making a killing? C is part of a large number of indexes and a good portion of that volume is done in basket automated trading on other arbitrage and hedging strategies. Itâs not like institutions are trading a lot of that volume back and forth and making the spread all the time.
Quote from xflat2186:
If the stocks trading at 4 then you need to look at the NOV 3 put and NOV 5 call, which is the opposite of what you posted. There is NO pure arbitrage on those strikes whether the underlying is static it not.
Why would you indicate that 400 million shares means someone is making a killing? C is part of a large number of indexes and a good portion of that volume is done in basket automated trading on other arbitrage and hedging strategies. Itâs not like institutions are trading a lot of that volume back and forth and making the spread all the time. [/B]
1M shares with a .02 to 05 fluctuation every few minutes, then definitely there is flash trading going on here and profit being made. no other explanation.