DNDN Option Help

G

garage sale

I have 500 DNDN that I picked between $5 and $7. I'll like to take some money (on 200 shares) around $20. A buddy of mine told me to write Jan 11 $20 calls for 200 shares which is trading around $7.

My question is if I am short calls and get called away I can still keep all the premium can't I? If I do get called my net position will be long 300 shares only....is it correct?

Thanks.
 
Quote from garage sale:

I have 500 DNDN that I picked between $5 and $7. I'll like to take some money (on 200 shares) around $20. A buddy of mine told me to write Jan 11 $20 calls for 200 shares which is trading around $7.

My question is if I am short calls and get called away I can still keep all the premium can't I? If I do get called my net position will be long 300 shares only....is it correct?

Thanks.
More...

When you sell an option you keep the entire premium, no matter what else happens.

That premium is NOT a deposit. If the option owner wants to buy your shares, he still must pay the strike price, or $20 per share.

Your risk: That the stock tumbles below $13 when expiration arrives. If you get $7 now, and at least $13 later, you'll have your $20.

If you sell 200 shares at $20 and you have 500 shares now, of course you would own 300 shares.

Mark
http://blog.mdwoptions.com/options_for_rookies
 
Quote from dagnyt:

When you sell an option you keep the entire premium, no matter what else happens.

That premium is NOT a deposit. If the option owner wants to buy your shares, he still must pay the strike price, or $20 per share.

Your risk: That the stock tumbles below $13 when expiration arrives. If you get $7 now, and at least $13 later, you'll have your $20.

If you sell 200 shares at $20 and you have 500 shares now, of course you would own 300 shares.

Mark
http://blog.mdwoptions.com/options_for_rookies
More...

Thanks a lot Mark. I knew that I would get an answer here and I've bookmarked your blog.
 
Mark,

Another question........

C June 09 $5 calls are selling at .35 and puts are selling at 2.39. If we were to sell puts and buy calls that will give us the ownership of the stock at 5-2.39+.35 = 2.96. Citi closed at 3.65. Without considering bid-ask spread or commissions, is there an arbitrage opportunity by selling puts + buying calls and shorting stocks?

Thanks.
 
Quote from garage sale:

I have 500 DNDN that I picked between $5 and $7. I'll like to take some money (on 200 shares) around $20. A buddy of mine told me to write Jan 11 $20 calls for 200 shares which is trading around $7.

My question is if I am short calls and get called away I can still keep all the premium can't I? If I do get called my net position will be long 300 shares only....is it correct?

Thanks.
More...

I would also focus on a different issue: the risk of losing your current profits.

If that stock goes back to $10, do not forget to PM me. I would share some knowledge with you, which at this point may not resonate with all views.
 
Quote from garage sale:

Mark,

Another question........

C June 09 $5 calls are selling at .35 and puts are selling at 2.39. If we were to sell puts and buy calls that will give us the ownership of the stock at 5-2.39+.35 = 2.96. Citi closed at 3.65. Without considering bid-ask spread or commissions, is there an arbitrage opportunity by selling puts + buying calls and shorting stocks?

Thanks.
More...

Yes, there is a theoretical arbitrage opportunity.

But the reason it exists is because it's impossible to borrow shares to sell. if you own long stock, then you can sell those shares, buy calls and sell puts.

Mark
 
Quote from garage sale:

C June 09 $5 calls are selling at .35 and puts are selling at 2.39. If we were to sell puts and buy calls that will give us the ownership of the stock at 5-2.39+.35 = 2.96. Citi closed at 3.65. Without considering bid-ask spread or commissions, is there an arbitrage opportunity by selling puts + buying calls and shorting stocks?
More...
There's no arb opportunity. The borrow rate for C is a bit over 100% so at $3.65 that's about a penny plus a day. With June expiration 61 days away, that accounts for the difference.
 
Quote from spindr0:

There's no arb opportunity. The borrow rate for C is a bit over 100% so at $3.65 that's about a penny plus a day. With June expiration 61 days away, that accounts for the difference.
More...

I looked at other stocks like YHOO and QQQQ and in their case C-P = So (or pretty close).

If someone wants to buy Citi here, doesn't it make sense to buy calls and sell puts instead of buying C stocks. The payoff seems to be the same but the cost is a little less. I see the same thing with BAC too.

Thanks.
 
Quote from garage sale:

I have 500 DNDN that I picked between $5 and $7. I'll like to take some money (on 200 shares) around $20. A buddy of mine told me to write Jan 11 $20 calls for 200 shares which is trading around $7.

My question is if I am short calls and get called away I can still keep all the premium can't I? If I do get called my net position will be long 300 shares only....is it correct?

Thanks.
More...



Hello

I had a few options on this stock - I sold most of my position and bought some may 19's. They will be giving out the numbers on the 28th and they look to be very promising. You may see $30 on the 29th. Just my opinion.

Good luck!!
 
i know this is a pharma stock, but the iv on it is insane currently. What do you guys think about making a play on this:

stock: $18

atm: may 19C+17.5P nets close to $7!!! that's a breakeven at 40% move!!

otm: may 30C + 11P nets close to $2 breakeven at 70% and 50% on either side.
 
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