Okay I wrote my first options.

N

noob_trad3r

I wrote 4 contracts for 58 cents each which totaled 219 dollars after commissions this was on 400 shares of GE that I bought for 15.60 a couple of days ago.

I did a limit order for .58 on Etrade and eventually it executed (it took hours and then it just went)


This was for GE GEW FV 22 for June call options.

GE today aftermarket is trading 16.86

IF GE never gets to 22 dollars I keep this money, does this mean now that I really paid 15.03 a share? Will etrade reflect that when it expires or will it keep it showing as 15.58.

I did it real far out since I do not really want to sell GE since I want to hold on to it but if it gets sold at 22 I will not be bothered too much, would a good idea then is to write puts with the money I collected from the selling of GE 1-2 months in advance to double dip on premiums etc.. (maybe write puts for 19 a share lets say)


what are the odds of GE hitting 22, everyone seems to say GE 12 month price target is 18 dollars.
 
Quote from bond_trad3r:

writing naked calls will get you shitted on sooner rather than later.
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Well it would not be naked, lets say my GE is sold at 22 because the call goes over, wont that be like a limit order but you get paid a premium (cash secured put?) This is what I read on the CBOE education site.

About using cash secured puts instead of limit orders.
 
Quote from noob_trad3r:


does this mean now that I really paid 15.03 a share? Will etrade reflect that when it expires or will it keep it showing as 15.58.
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no. they are seperate transactions.
 
Quote from noob_trad3r:



IF GE never gets to 22 dollars I keep this money, does this mean now that I really paid 15.03 a share? Will etrade reflect that when it expires or will it keep it showing as 15.58.
More...

You paid $15.60, but you collected your premium which is a separate transaction. For your own purposes you can think of having a $15.03 cost basis, but to Etrade and the IRS, your cost basis is still $15.60

Quote from noob_trad3r:


I did it real far out since I do not really want to sell GE since I want to hold on to it but if it gets sold at 22 I will not be bothered too much, would a good idea then is to write puts with the money I collected from the selling of GE 1-2 months in advance to double dip on premiums etc.. (maybe write puts for 19 a share lets say)


what are the odds of GE hitting 22, everyone seems to say GE 12 month price target is 18 dollars.
More...

You can purchase the Puts with your premium if you wish, but you might look at a closer to the ITM Put with a higher delta for more protection if you are really worried about GE falling in price.
 
Thanks for the details I will keep the premiums and put them in my interest bearing account, maybe buy some more stocks and use the premiums with some of my paycheck to buy more stocks for the longhaul

Options trading seems interesting, its like selling insurance contracts (ie GEICO) and collecting your premiums.

I was reading that when people are more scared the VIX goes up which means people are more willing to pay higher premiums, I guess that is like insuring a teenager VS an adult. and when people are less scared premium goes down. etc..
 
Another question. Since this option is a little over 5 months do I use the 3 month tbill interest rate to do the calculation of the carrying cost as an input to my options calculator?

Volatility would be the VIX right?


This is what my calculation shows.
delta gamma theta vega rho
0.1835 0.0614 -0.0036 0.0268 0.0122
theoretical value implied volatility

0.39 *44.27%


My imputs were shareprice 16.86
dividend yield 0
interest rate .13
days to expire 165
volatility 38.56

I put in 0% dividend since it does not fall in the dividend period (Dividends are June 19)


Is this right? or did someone just pay too much for these options? looking at the IV information it shows 22-35% range for those month periods
 
Noob, you're ideas are good but I think you might be getting confused. The VIX is a put/call ratio on a much broader scale than just GE. Each individual equity has it's own volatility that is the unknown and if the market starts to run north will crank up. Then you'll see the VIX start to fall because less people are buying puts for protection.

the real question to ask yourself is, why did you buy GE? if you bought it because it was cheap and you want it long term then writing OTM calls is a good play as long as you'd be ok with getting out of your pos'n at 22. If you wanted just make some extra cash, then you could always buy the calls back.

either way, good luck with your trade.
in the current markets Calls will be expensive and Puts will be cheap. just as the reverse was true for the last 6 months
 
Thanks for the info, I bought GE for longterm but if I get my shares sold at 22 I am fine with that as well.

I put VIX in as a SWAG I figured GE is supposedly the bellwether stock that represents sort of the broad economy.

now looking at the chart I see that last year between may-july the IV averaged around 28-30


Anyhow this is interesting stuff. I am going through the books and learning as much as possible.
 
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