C

[xflat2186]

Again, you and I dont know who is on what side and how those trades are being executed so I would say this. Yea people and institutions trade to make money but just because you see volume does not mean shares are being pushed back and forth to make that 2 to 5 cents round turn.

 

[MTE]

Actually the beauty of flash orders is that you don't even need price movement to make money.

 

[BostonTrader339]

Quote from MTE:

Actually the beauty of flash orders is that you don't even need price movement to make money.

somewhat true. or at least, no one sees the difference. therein lies the rub.

 

[spindr0]

Quote from TRYKtrading:

so at $4, am i writing the nov4C, the nov4P, or the 5s?

That depends on whether you seek more premium (neutral outlook) or more stock appreciation (bullish).

am i vertically spreading, or just selling the one or the other?

If you really don't know the difference, it would behoove you to learn what each strategy achieves.

 

[spindr0]

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.

First off, there's always downside risk on the stock. You may be bullish and be willing to accept it but it's always there.

The returns will not be consistent. There will be no fixed payment every third week of the month, say to the tune of $25K.

If you wrote the 1 month $4 CC for 25 cts and C was at $4.50 at expiration, what would you do then? Roll out a month for only another dime? Roll up to the $5's for a 40 ct debit?

What if C was $3 at expiration. Would you sell the $3's for some premium but potentially locking in a loss if assigned? Or would you write the $4's for a coupla pennies?

And FWIW, IMHO, rolling up for debits is a beddy beddy bad thing to do

 

[BostonTrader339]

Quote from xflat2186:


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.

i agree but i was using C as a longer term example, because i would likely look to higher strikes and much longer out expiry to take advantage of the time decay and minimise downside risk as the stock fluctuates. i'm thinking six months, a year, and writing the highest calls on the probability they will decrease in value at a higher rate than a closer ITM call.

but yes, absolutely i am looking at other stocks. i believe WMT is a great stock for this as it moves so slowly sideways and rarely moves in $5 points to cover option expiry on the OTMS every month.

thanks for the input.

 

[spindr0]

Quote from TRYKtrading:

i agree but i was using C as a longer term example, because i would likely look to higher strikes and much longer out expiry to take advantage of the time decay and minimise downside risk as the stock fluctuates. i'm thinking six months, a year, and writing the highest calls on the probability they will decrease in value at a higher rate than a closer ITM call.

I think you have a lot of that backwards

 

[BostonTrader339]

Quote from spindr0:

I think you have a lot of that backwards

yes, yes i do. at least someone caught that.

 

[xflat2186]

There further from the ATM you go the slower the decay rate.

There is always downside risk in every stock, period end of story. Selling calls is not really a good hedge to downside risk. Ask any of the covered call sellers how they did in 2008/9

 

[spindr0]

Quote from xflat2186:

Selling calls is not really a good hedge to downside risk. Ask any of the covered call sellers how they did in 2008/9

Duhhh! All of them made money as their written calls expired worthless!