Hi all. As you can see, I am new. Currently, I'm learning and struggling most with terminology and how things work. I've already been hitting the books on all of this; these questions are just a result of what all I've learned. I would appreciate it and be very grateful if one or more people could help me with my list of questions that I've developed while studying. I'm sure some will sound very stupid, but I apologize in advance.
1. If, when selling put options, the stock you are selling put options on, starts going below the strike price (thus, you are losing the bet), can you cancel and get out with most of your money, or are you forced to wait for the put option buyer to exercise the option and then walk away with whatever you walk away with? Essentially, can a stop loss be set for a seller when selling put options? If so, is there any punishment from the seller's broker?
2. When people use margin when selling put options, how much more are their gains than if they were cash-secured? (I know it depends, but how much can it generally add?)
3. Can a put option seller be limited by having too much capital? For example, Warren Buffett has too much money to successfully invest in small cap stocks. Does he also have too much money to successfully sell put options with? Could someone using, say, $200,0000,000 sell put options on a few stocks and get just as good of a return percentage as someone using $200,000? If there's a general approximate capital limit, about how much is it?
4. So, if I understand correctly, without margin, a put option seller must have enough money in their account to pay for 100 shares of the stock they are selling put options on, for every one put contract they sell? Someone selling options at a $149 strike price must have at least $14,900 freed up and dedicated until the end of the option comes?
5. What's the difference between selling cash-secured put options and selling put options using margin if you have to have the money for buying the stock in both scenarios (in one as cash, and in the other at least in collateral)? Is the only difference an increase in gains and the fact that you can invest the collateral in other ways when using margin?
6. Is it true that selling put options either cash-secured or with margin is largely unprofitable to your total investment capital in that you always have to have an increasing cash pile on reserve for the put option buyer?
For example, in order to make $10,000 in selling put options, you would need approximately $1,000,000 (or $100,000?) to secure it, and once you worked your way up to making $100,000 in selling put options, you would need approximately $10,000,000 (or $1,000,000?) to secure it. The proportion of your return vs. the cash or collateral needed to cover you in case the price falls below the strike price and the buyer exercises the option. With or without margin, the more money you make from selling put options, if you reinvest all that money in selling more put options, the more money you will need to have reserved for the put option buyer in case the stock price goes below the strike price? If someone was looking to make $10,000 off of selling put options, wouldn't they need to have a very high amount of money (like $1,000,000+) “locked up” for that time being, and even more next time?
Essentially, if I was looking to invest $100,000, I could only make money on a small fraction of it with selling put options?
Am I wrong? Being completely new to understanding options in themselves, I was under the impression that you could make money based off of at least 50% of your capital or so when selling put options. I know I sound stupid, but I'm very new to this. Please tell me what's wrong or right about my understanding.
7. How common is it to make 4, 5, or 6+ percent consistently per month from selling cash-secured put options without margin or even with margin? What's a good, typical range of expected percentage return for selling put options with margin and without margin?
8. What typical returns are offered up front when “shopping” for put options to sell on a stock? For example, you're deciding to sell options on XYZ stock. When looking at the list of strike prices, time spans, etc. available, what's the usual highest return a put seller can choose to get up front? (With there of course being no guarantee they will keep that.) I've read that 2% per month is “reasonable,” but I've never read about the “upper limit” percentage return commonly available (and for what time span).
Thank you.
1. If, when selling put options, the stock you are selling put options on, starts going below the strike price (thus, you are losing the bet), can you cancel and get out with most of your money, or are you forced to wait for the put option buyer to exercise the option and then walk away with whatever you walk away with? Essentially, can a stop loss be set for a seller when selling put options? If so, is there any punishment from the seller's broker?
2. When people use margin when selling put options, how much more are their gains than if they were cash-secured? (I know it depends, but how much can it generally add?)
3. Can a put option seller be limited by having too much capital? For example, Warren Buffett has too much money to successfully invest in small cap stocks. Does he also have too much money to successfully sell put options with? Could someone using, say, $200,0000,000 sell put options on a few stocks and get just as good of a return percentage as someone using $200,000? If there's a general approximate capital limit, about how much is it?
4. So, if I understand correctly, without margin, a put option seller must have enough money in their account to pay for 100 shares of the stock they are selling put options on, for every one put contract they sell? Someone selling options at a $149 strike price must have at least $14,900 freed up and dedicated until the end of the option comes?
5. What's the difference between selling cash-secured put options and selling put options using margin if you have to have the money for buying the stock in both scenarios (in one as cash, and in the other at least in collateral)? Is the only difference an increase in gains and the fact that you can invest the collateral in other ways when using margin?
6. Is it true that selling put options either cash-secured or with margin is largely unprofitable to your total investment capital in that you always have to have an increasing cash pile on reserve for the put option buyer?
For example, in order to make $10,000 in selling put options, you would need approximately $1,000,000 (or $100,000?) to secure it, and once you worked your way up to making $100,000 in selling put options, you would need approximately $10,000,000 (or $1,000,000?) to secure it. The proportion of your return vs. the cash or collateral needed to cover you in case the price falls below the strike price and the buyer exercises the option. With or without margin, the more money you make from selling put options, if you reinvest all that money in selling more put options, the more money you will need to have reserved for the put option buyer in case the stock price goes below the strike price? If someone was looking to make $10,000 off of selling put options, wouldn't they need to have a very high amount of money (like $1,000,000+) “locked up” for that time being, and even more next time?
Essentially, if I was looking to invest $100,000, I could only make money on a small fraction of it with selling put options?
Am I wrong? Being completely new to understanding options in themselves, I was under the impression that you could make money based off of at least 50% of your capital or so when selling put options. I know I sound stupid, but I'm very new to this. Please tell me what's wrong or right about my understanding.
7. How common is it to make 4, 5, or 6+ percent consistently per month from selling cash-secured put options without margin or even with margin? What's a good, typical range of expected percentage return for selling put options with margin and without margin?
8. What typical returns are offered up front when “shopping” for put options to sell on a stock? For example, you're deciding to sell options on XYZ stock. When looking at the list of strike prices, time spans, etc. available, what's the usual highest return a put seller can choose to get up front? (With there of course being no guarantee they will keep that.) I've read that 2% per month is “reasonable,” but I've never read about the “upper limit” percentage return commonly available (and for what time span).
Thank you.
