How much do you have to know?
- Thread starter gritsking
- Start date
Quote from JJacksET4:
Dude, like FreeThinker mentions, sell the 36 strike put - you would have received for example $700 up front - the stock moves to 36 and it expires worthless and you get the $700 - just like the CC writer.
It's really not that hard and nothing to laugh at!
JJacksET4
Which 36 strike put though?
That's the question that never gets answered. Be careful not to use future price information to select your expiration month.
If you're going to make this claim, you have to clearly explain what puts you were short and at what dates without looking at the eventual outcome on the chart.
Also note that all options on LLY more than a few dollars off tend to have a volume/OI of zero. So when LLY is at 30, there is in effect no such thing as a LLY 36 put. You can try to write them all you like, but no one's buying.
you asked me to replicate your trade smart ass. why is it so difficult for you to understand put call parity? you are not making yourself look too smart here.Quote from The Big D:
Nice try - why did you pick January? Don't tell me you used future price information from January all the way back in October to make your decision...
Options weenies are so funny
Quote from The Big D:
Since we were talking about the 2008-2009 timeframe, here's an example covered call trade from that period. Feel free to explain how 1 or more short puts would be equivalent
Trade #1: Buy LLY @ 30.00 the week of Oct 10 via limit order (margin of safety says maximum holding price is $36)
( receive $0.47 dividend week of Oct 14 )
Trade #2: Write covered call, JAN09, strike $36, week of Dec. 12 (collecting maybe 0.50 of premium, not that it matters for this example)
(called out of position at JAN expiration)
Net result: $6 of stock profit, $0.47 of dividends, $0.50 of premium, position flat.
One more point about this example where the stock happened to move upward:
You state "here's an example covered call trade from that period...."
Then, "Net result: $6 of stock profit, $0.47 of dividends, $0.50 of premium, position flat."
So, basically it was really a stock trade that gained the $6 + the dividends - then you just used the CC to get the 50 cents of premium. In other words, during the week of Dec 12, the stock had risen to the $36 range and you could have sold the stock - no CC required to earn the $6+dividend.
So the majority of the gains were just the stock trade - no CC required.
It's easy to find a stock that goes up $6 and show how a person could have made a profit - and btw - why wouldn't a person have chosen Jan for the put sell? What about other months? Many would have worked as long as the stock moved up.
Also, btw you might want to study up - even DITM puts ARE generally sellable if they are listed - I see small but some numbers for volume and OI for July, Oct, etc. Also, what do you think Bid and Ask mean? Try it sometime if you don't believe me - but you might want to go study options in detail for a while and come back here later.
JJacksET4
The point was simply that this trade is the one I wanted replicated with puts, and yes - the profit does mostly come from the underlying. And no, you can't replicate it with just puts unless you happen to be psychic and know which month to sell ahead of time. The only way you can replicate the behavior I described exactly with a put is to use a put to get long the underlying in the first month, which is what I'v been getting at all along - being long the underlying is the key here. But the options weenies will continue to miss that basic point.
Of course, after getting something right then you turned into a pompous ass - nice going. Just for the record, I understand put-call parity much better than anyone else in this thread - including when it DOESN'T hold, which is much more interesting than when it does.
"And no, you can't replicate it with just puts unless you happen to be psychic and know which month to sell ahead of time."
Yeah, and you can't replicate it with a covered call either - you just bought the stock and it went up $6 and then sold a CC - that has nothing to do with CCs being better or different then puts! That is like if I said I made a bunch of money selling baseball cards and there is no way to do that with options, so options must suck.
I will not add to this thread any longer as there is no point in it.
JJacksET4
Ok, one more comment - you act like an expert on put-call parity, and then you claim it is impossible to sell DITM puts that are listed with bids and asks? Then you say option people overlook stuff?
It is VERY BASIC that you CAN sell DITM puts even if the volume and OI is low - don't come here with your high horse and claim it is impossible as you did a few posts back.
JJacksET4
You should review the bidding - my point was always that the total behavior of a covered call portfolio can't be replicated with short puts. Some of the time you can replicate some of the behavior. That's not the same as replicating all of it all the time.
In retrospect you can always come back and find a short put position with very similar behavior (although not the same - worthless prize to whoever can state what the differences are). But you can't know what expiration to choose ahead of time. And of course with the put(s) you end up eating the spread in in illiquid instrument instead of making the spread in a liquid instrument when you actually try to implement the strategy. But minor details like that apparently don't matter to the options weenies.