Obligation of selling (writing) a call option
- Thread starter moolah
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Robert Morse
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put in terms i can understand.
so you want to sell a bicycle and if it doesn't work out you forfeit your house.
to defend against that stupidity you want to buy another bicycle, brilliant.
ps the thing is bud when the market runs against you that call you want to buy will cost 10 times what it was and the call you sold will be in debt 20 times what you sold it for.
volatility impact on margins read up on it.
so you want to sell a bicycle and if it doesn't work out you forfeit your house.
to defend against that stupidity you want to buy another bicycle, brilliant.
ps the thing is bud when the market runs against you that call you want to buy will cost 10 times what it was and the call you sold will be in debt 20 times what you sold it for.
volatility impact on margins read up on it.
I notice you really, really dislike options. To the point you use terrible analogies to describe them. A better analogy for this trade is as follows:
1. I sell you a contract promising to sell you a house at a specified price by a specified time.
2. You give me some premium on the contract for my time since in theory I have to hold the house for potentially a while.
3. You want the house because the housing market has gone up.
4. I don't have the house.
5. I have to go to the market and buy a house for you to fulfill my side of the contract.
6. My maximum loss is the difference between the strike and the market price for the house (potentially infinity, but highly highly unlikely).
I'm not sure why you hate them. 70+% of options expire worthless, making selling a positive EV play. You should practice good risk management and never risk more than 1-2% in any trade. Do that and you can't "put your house up against a bicycle" ever. This is basically gambling theory 101. Play enough poker and you realize you need to keep your roll together for the variance.
That being said, there is a little obligation people don't think about with selling calls. You have a higher probability of early exercise if it is near the record date. This is one of the few times it makes sense to exercise a slightly ITM option. Worth thinking about if you're trading a dividend paying stock.
Shhh....the more people that believe him, the fewer that feed in my bright green grassy pasture.
You can if you own the stock (covered calls). There also must be someone who will buy the call back...At least 1 cent and you pay the commission (unless you are a Schwab). Schwab has something that allows you to close your position commission free (just a few cents per lot). If there is no market (no .01) you must hold or worry that you have an uncovered position...And yes, I am talking about covered calls.
i was a trader for at one time the largest option trader there was. so i love option selling it's all i would ever do if i traded options which now i only trade futures.
my hate is for people who think they can trade options after watching a you tube video and flippantly trade a product that is reserved for only the absolute best to succeed at.
To this I can agree with you.
I feel like there's some sort of conspiracy around options going on. Brokers are promoting it as "easy ways to generate income", etc etc. It's basically becoming the new Forex with a way lower probability of success (as a beginner who probably cant afford to short anything) and way higher commissions for the broker.
Futures are generally where I hang around too. They're comfy.
Why futures? Or do you folks trade options on futures?