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option noob
- Thread starter RichKid
- Start date
Quote from RichKid:
ohh and one more question if I think that price will fall down I need put, but which one, sell put or buy put ??
Selling a put obligates you to buy the UL. Tread carefully if you go there.
If you think the price will go down, BUY a put.
My newb advice is don't be selling anything until you know way more than you appear to know now.
Quote from RichKid:
So I will be neutral if I sell call or sell put
No.
Selling a call obligates you to sell the UL at the strike price. Selling a put obligates you to buy the UL at the strike price. Do you understand the meaning of the word "obligate?" Do those seem like neutral strategies to you?
Like I said previously, I am an options trading newb too but I know enough to recognize that you have A LOT to learn before you put real money on the line with options.
Right now I am limiting my options trading to buying straight calls/puts on the SPY and GLD. These are simple strategies with limited risk. My risk, with these strategies, is limited to the cost of the trade.
When you sell an option, your risk is unlimited. DON'T DO THAT. Let me give you an example.
You get a brain fart and decide to sell a call contract of ABC with a $30 strike price and an August expiration. You do not own any share of ABC when you sell this call and ABC was trading for $25. A contract represents 100 shares of ABC. By selling this single contract you have obligated yourself to sell 100 shares of ABC for $30 any time between now and, for all practical purposes, the third Friday in August. Once again, you have OBLIGATED yourself to deliver the stock at $30.
Okay, the stock can be bought on the market for $25. No one is going to call your $30 strike. You're a genius. You pocket the premium you made when you sold the call and move on to the next deal.
But what if the stock goes to $70 tomorrow and you get called on your $30 strike on shares of ABC that you don't own? You will have to go out to the market and buy 100 shares of ABC at $70 so you can deliver them at $30. Don't think that can't happen because it most certainly can happen. Does that strike you as a neutral strategy?
If you want to examine the risk of selling puts, you can just kind of reverse things in the above paragraph where instead of being obligated to sell the UL you are obligated to buy it.
One of the experts will be along to correct me if I am wrong but I don't think anyone here will advocate naked selling to someone with your experience level.
RichKid,
If you don't know whether to BUY or SELL a PUT, then you need to start your education here:
http://www.888options.com/
SDNYC
If you don't know whether to BUY or SELL a PUT, then you need to start your education here:
http://www.888options.com/
SDNYC
Besides a good book on options (several of which have been recommended in this thread) I find it helpful to visualize some of the ideas presented in words. Since you already have ToS, set up a trade in the order entry form you wish to investigate. Right click on the little blue dot and select analyze. Now you will see in graphical form how your proposed trade will perform under a range of prices of the underlying.
Looking at the picture will answer more quickly your "should I buy or sell the put" than memorizing. Doing this a bunch of times will begin to cement these concepts into your thinking.
Looking at the picture will answer more quickly your "should I buy or sell the put" than memorizing. Doing this a bunch of times will begin to cement these concepts into your thinking.