Selling puts to enter?
- Thread starter spinn
- Start date
Your response is the correct one
KISS.
Example: Ford ~16
***All bullish examples below.
Example #1: (Short Put)
Sell Jan 20Put ... 4.65 ($465)
Breakeven = 15.35
Max profit $465 with a close above 20 @ expiration.
Stock put to you with a close below 20.
Example #2: (Short Put)
Sell Jan 16Put ... 1.91 ($191)
Breakeven = 14.09
Max profit $191 with a close above 16 @ expiration.
Stock put to you with a close below 16.
Example #3: (Long Call)
Buy Jan 11Call ... 5.25 ($525)
Breakeven = 16.25
Max profit unlimited.
Max loss = $525 with a close below 11 @ expiration.
Example #4: (Long Call Spread)
Buy Jan 13/20 Call Spread ... 3.08 ($308)
Breakeven = 16.08
Max profit = $392 with a close above 20 @ expiration.
Max loss = $308 with a close below 13 @ expiration.
***All bullish examples below.
Example #1: (Short Put)
Sell Jan 20Put ... 4.65 ($465)
Breakeven = 15.35
Max profit $465 with a close above 20 @ expiration.
Stock put to you with a close below 20.
Example #2: (Short Put)
Sell Jan 16Put ... 1.91 ($191)
Breakeven = 14.09
Max profit $191 with a close above 16 @ expiration.
Stock put to you with a close below 16.
Example #3: (Long Call)
Buy Jan 11Call ... 5.25 ($525)
Breakeven = 16.25
Max profit unlimited.
Max loss = $525 with a close below 11 @ expiration.
Example #4: (Long Call Spread)
Buy Jan 13/20 Call Spread ... 3.08 ($308)
Breakeven = 16.08
Max profit = $392 with a close above 20 @ expiration.
Max loss = $308 with a close below 13 @ expiration.
You may know this but since you said this is new to you it's important to state.
1) You can lose more than your original investment by selling puts.
2) Trading options generally exposes you to very high bid/ask spreads and that will cost you.
If you want to go long the stock it is FAR more efficient to just buy the stock. You would need some other reason than simply favoring the stock before an options trade on it makes sense.
1) You can lose more than your original investment by selling puts.
2) Trading options generally exposes you to very high bid/ask spreads and that will cost you.
If you want to go long the stock it is FAR more efficient to just buy the stock. You would need some other reason than simply favoring the stock before an options trade on it makes sense.
How do you calculate the original investment?
Why? If one sets his/her own limit price then it either will be filled or else will wait in the order book.
That same money can be invested much better in options, giving a much better ROI.
Then go for it. lol. That was a joke. Please don't.
Setting a limit price DOES NOT remove liquidity costs. Period. There is a reason firms make money as liquidity providers. They play the liquidity providing game far better than you will by simply using your broker's provided desktop software and setting a limit order. Your round trip trade on this option will absolutely cost you from the standpoint of finding liquidity.
It is incorrect to make the general statement that options are a better ROI. They are a tool that can make sense in very specific circumstances. My feeling from your messages is that you are applying this as a general statement and simply want to use options to make general long bets on stocks. If that's the case then I'm going to disagree with you.
You can calculate your original investment. My statement was simply intended to refer to the money you receive from selling the put option.
@BKR88, besides the max profit you better should also give the investment amount as well the ROI in percent.
Investment amount is the collateral the broker asks for, ie. the margin requirement or cash requirement for opening that position.
But then how do you calculate the ROI in percent? Just give an example if you can.
To do this correctly you need to know how much cash your broker requires you to have on hand to sell the put. This varies a lot depending on the put you are selling and can easily be many multiples of the amount you hope to gain on the trade. So the cash required to enter the trade is actually your original investment even though all of it will just sit in your account and be unusable. From that you can calculate ROI for different outcomes.