i'm going to ask some noob questions and you're not going to make fun of me

[kmiklas]

1. You are missing the key strategies to mitigate risk: covered call and covered put. Writers/sellers of options use these strats to protect them from taking a huge loss if the stock moves sharply against them. Just selling a call/put without covering/protecting is called naked, and it can be quite risky. [A, B, C]

Note that a covered put and a protective put are two different strats. [D]

2. The further out of the money you go, the lower premium you'll pay.

3. If the stock moves sharply, or moves out of hours, you will not be able to sell shares. The price will move directly up or down, and you will not be able to gradually sell as the price moves. As a retail trader, if you submit a market order for a rapidly changing instrument, you're last in line; you'll get the worst price, and stuck with a big loss.

4. I like Interactive Brokers, but more for the API than the charting.


A. The Basics of Covered Calls (investopedia.com)
B. What Is a Covered Put? | The Motley Fool
C. Naked Put Definition (investopedia.com)
D. Protective Put Definition (investopedia.com)

 

[newwurldmn]

Covered calls don’t mitigate risk. When a stock falls 30percent, the two percent you received selling the call will provide little comfort.

 

[destriero]

So, I've been on this site for a long time, and there's always the guy who's like you've been on this site for so long and you don't know this stuff? Nope. Because I've spent maybe 1% of my time learning about options.

Look, I've been reading more about options, and I have some questions.

First, it seems like a lot of people make money writing options. The payoff chart for a lot of these basically seems like, if price stays at or above a certain price, you make a little money, and if price goes below it, you lose potentially a lot of money. Yet this is peddled as a strategy. What am I missing? Is this a lot of small wins and few big losses? If you're so confident price will stay above a certain price, why not buy a call or stock?

Second, let's say a stock is at 100 and you think it's going to fall. You could short it, but you'd rather buy puts. Is there a reason and/or name for doing it like this:

Buy 1 95 put
Buy 1 90 put
Buy 1 85 put
etc.

edit - let me clarify: instead of buying one put at like 95, you are buying many puts at different prices, each lower than the other. So if price falls, some/all of them may give money.

So if price drops a bit, you make a little, and if it drops a lot, you make heaps?

Third, I found a video where a guy was talking about buying puts to hedge your risk. For example, he said if you bought a stock at 100 and it went up to 200, and then you were worried it might fall, so you might buy a 150 put. Ok, this makes sense. But. If you think it's going to fall, why wouldn't you just sell some of your shares rather than buy a put? You're going to lose less if it falls, and you're going to make less if it rises.

Forth, my broker is TDAmeritrade. I have seen some fancy option charts places with lines and stuff that show you how much you'll generate. My broker doesn't do this. Can you recommend someone who does?

Finally, are there websites that will do this? I found https://www.optionsprofitcalculator.com/ which sort of does what I'm asking but not really.

Appreciation!

Why aren't you using thinkorswim's front-end?

 

[vegamedic]

Forth, my broker is TDAmeritrade. I have seen some fancy option charts places with lines and stuff that show you how much you'll generate. My broker doesn't do this. Can you recommend someone who does?

your current broker. get TDA's thinkorswim client, the "risk profile" graphs are what you're looking for