My option trades
- Thread starter ryanpatrick
- Start date
Aaaggh, now think this through. If you are "put" the stock, the put has expired or been exercised early. You now own a good stock at a good price with a good dividend return. As in washing your hair, "rinse and repeat" with many top dividend payers.
If the put goes out worthless, you have made 100% of the money you sold it for, instead of losing 100% because you bought a put that went out worthless.
Don
Quote from Don Bright:
Aaaggh, now think this through. If you are "put" the stock, the put has expired or been exercised early. You now own a good stock at a good price with a good dividend return. As in washing your hair, "rinse and repeat" with many top dividend payers.
If the put goes out worthless, you have made 100% of the money you sold it for, instead of losing 100% because you bought a put that went out worthless.
Don
LOL, we have all been there Don...........
Alright. Okay! Let me see. You calculate what the dividend rate should be if you wanted it to buy. Then sell the PUT at that calculated strike? Never having done an expiration, or traded options on stocks, ( I have traded stocks though ) ( even done a couple of stock dividend strategies. )
So when the put expires and let me see, if it didn´t get hit, you are keeping the Put premium. If you do get hit, at the PUT strike, you end up getting the stock? Hmnn! And you do this before the dividend pays out, which is closed, what a week before the quarter or something? Kinda hazy on that stuff nowadays. YOu get the stock and the dividend. The stock will probably go back up, to bring the dividend back to normal range, when you can sell it.
I think dividends are paid quarterly maybe? You did say you are doing this most months. So you are obviously not getting hit and collecting premium.
How much do they exchange a couple of contracts of PUTS for when they take the money out of your account to pay for the more expensive stock?
Be back in an hour, as wife is after me to get swimming.
So when the put expires and let me see, if it didn´t get hit, you are keeping the Put premium. If you do get hit, at the PUT strike, you end up getting the stock? Hmnn! And you do this before the dividend pays out, which is closed, what a week before the quarter or something? Kinda hazy on that stuff nowadays. YOu get the stock and the dividend. The stock will probably go back up, to bring the dividend back to normal range, when you can sell it.
I think dividends are paid quarterly maybe? You did say you are doing this most months. So you are obviously not getting hit and collecting premium.
How much do they exchange a couple of contracts of PUTS for when they take the money out of your account to pay for the more expensive stock?
Be back in an hour, as wife is after me to get swimming.
What Don is saying Falcon is that you first sell the Puts (or if you already own the stock that's probably fine too). If the puts get exercised you get a good quality stock at a lower price (because your short puts will only be exercised if the stock falls).
So you collect that premium and you get to own a good quality stock at a lower price.
That premium you collected acts as a dividend (think about it- dividends are like free money you get when you own a stock. the premium was free money too)
The catch here is to own "good quality" stock so your risk of stock falling rather low is quite small- which is more or less a qualitative assessment. For example, you might prefer giant well established "blue chip" stocks...
OK, please just follow this through. If I said I could get you XYZ stock $10 cheaper than it is, where the dividend yield is 10%. You understand how to calculate dividend yield, right? $30 stock, paying $3.00 per year is 10% yield. Paid quarterly. Now, that stock is probably trading around $40 or more because if it were $30, then everyone in the world would be buying it to collect the dividend, right?
So, while the stock is only paying a lower dividend yield when at $40, it is great at $30. Following me here? This is one major reason that stocks have "support" levels, at high dividend yield prices. You either just collect $$ from the total premium you sold, 100%, or you get the stock at a great price, that should either go up or pay you dividends.
Guys, please help me out here. Maybe I'm not being clear enough? Just trying to help out here.
Don
I must have been typing while you were. Thanks for the assist, LOL. It seems that some of these concepts may be harder to understand when reading on ET vs. actually charting them out. That's how I try to teach the college classes.
Thanks to you and Kingypoo as well.
Don
Quote from falconview:
Babu
What I found in order to get the TOS -Calendar trade - was click on the bid of the March weekly ( end of month 7 days ) ( you say ask? )- The bid of March would then default to sell March and buy April ( ask- I presume? )
It would give me a premium limit. I thought I could change that limit order, but maybe not, or maybe I did something else wrong? First time I am doing this, so as an old senile man I get confused perhaps?
I used to have a practise TOS account, but all those notes are up in the foothills of the Belize Alps at my house and here in this vacation apartment, on the island beach, I don´t have notes and have forgotten the password for that web based practise trading. I might play with this again today Friday. Though looking at the price action, I´m thinking of increasing my straight buying of CALLS bet size. With a double bottom, I might be able to get .50 cents to .70 cents, early next week.
Anyway, thankyou for the help. That was kind and considerate of you to take the time. Us amateurs on here are a pain in the neck, not only to our own frustrations trying to learn this stuff, but certainly to the patience of the long term professionals. Drives them battyDrives me nuts and I´m trying to learn it. The young ones have more agile minds I guess?
Lol, I'm not a pro but thanks.
I wouldn't use the web based version. Use the desktop one. As for March yeah it's bid and for april it's ask. But thats if you're doing it month by month.
If you choose the calendar spread selection, TOS will automatically determine that you're about to do a calendar and so will generate that list of Mar/Apr Strike combos you would probably want for your calendar.
So all you do now is click on "ask" of that spread because the calendar is a net debit transaction no matter strike combination you pick.
Like I said, use the DESKTOP version, not the web based. The Desktop one is easier to use.
Also, for TOS, just create a new email address and sign up for a practice account. Save the username and login somewhere. Give them a fake Social Insurance Number when you sign up for the practice account.
Don't worry they won't come knocking. TOS is just great for messing around with risk graphs and learning how to set up combo trades (like the Calendar in this instance).
I'm in Canada and the SIN I've given them for my practice account is the distance between the Earth and the moon in meters.
l find it interesting that, many years ago, I was asked by Optionetics and also, what I believe were part of the original TOS team, about how best to set up option screens and filters.
I was happy to help, wish I would have kept records of the discussions. The basic overview was to simply have fundamentals pop up, show have the ability to alter basics like vol, interest rates, and other basics. Then have an auto feature to show all the simple trades, straddles, strangles, condors, iron, butterflies, all the simple stuff. AND, dividend put selling strategies.
I'm guessing that maybe these suggestions were not inline with their profit/business model. Not that I'm assuming they should have listened to me, but the basics were so simple that I thought you guys had all this at the touch of a mouse click.
I did the same thing for Wells Fargo investment group, only more for stocks. They actually used my ideas, oh well.
Don
I was happy to help, wish I would have kept records of the discussions. The basic overview was to simply have fundamentals pop up, show have the ability to alter basics like vol, interest rates, and other basics. Then have an auto feature to show all the simple trades, straddles, strangles, condors, iron, butterflies, all the simple stuff. AND, dividend put selling strategies.
I'm guessing that maybe these suggestions were not inline with their profit/business model. Not that I'm assuming they should have listened to me, but the basics were so simple that I thought you guys had all this at the touch of a mouse click.
I did the same thing for Wells Fargo investment group, only more for stocks. They actually used my ideas, oh well.
Don