What is the point of Options?

T

thyrus

So I am so far in the green with trading but have not traded options. I don't see how they are different than normal swing trading or margin trading where hmm... I think TSLA is going up at a certain point, so I buy 100 shares and then sell them when I think it's peaked and is about to drop.

What is the whole deal about "picking up calls" and paying for options contracts, please let me know the advantage in layman's terms, not drowning me in terminology.

Thanks.
 
using TSLA as an example, when it was trading at around $700 a few months ago, I believed that it was in bubble territory. To outright short it requires a margin trading account and when it went to $900 I would have likely been liquidated.

What I actually did is buy Sept 2020 $500 puts. Tesla went to $900, my puts went down in value as expected, but when TSLA finally went below $400 in March my puts went through the roof - one of the most profitable trades I've ever made.

Buy puts if you think the price is going down but you aren't sure when. Buy calls when you think the price is going up but you don't know when. (e.g., if you think oil will recover buy 2021-2022 calls).
 
Fixed, Loss, no SL required although you can put a SL on your options more for ITM I guess.

US likely made 10x's his money on that trade, so can be very profitable.

But the time decay sucks.

Point well it's just another form of gambling
 
yet to meet anyone that has accurately predicted the market before the event, as in when stock ABC would drop or pop 5 days from the 'I called it'

after the fact anyone can pipe up ....'see, I was right'

swing trade or options, personal choice ... leaves you guessing 'which way the position will go' or when to buy/sell or exit a position.

TSLA was a good reference with a 12 mth range $176.99 - $968.99

instead of trying to guess what might be a long term single winner such as AAPL or AMZN, why not just buy & hold long on one of the indices or the leveraged 3x, sell covered calls on the long & ride the wave - it could be that simple, what could possibly go wrong?

https://www.splithistory.com/tqqq/

Then there is always BRB-B for the faint of heart
 
1.You pay a premium to the guy who sells you the option. The Premium moves your break even up. In most cases the move the stock makes during the time you are holding the option is lower than the new breakeven-> Premium Seller makes money

2. Leverage, not everyone has a big account. If you are sure the underlying will move beyond the break even you can leverage up with options. For 25% of the Stockprice you will get options that move as if you had bought 85-100 Shares.
 
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snowman80 said:
options = opportunity...to make money, to lose money and to learn about yourself
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True

OP, why options vs swing trading vs long buy & hold?

All it takes is mastery to get the strategy to 'hopefully' being a winner each time.

Win some, lose some, breakeven - many just lose & lose again ... all it takes is time, skill, patience & a crystal ball.

Folks will chest thump about their winners, less or never about losing trades.

A simple example on UVXY one that is a forever decaying stock.

https://www.splithistory.com/uvxy/

Even with current events & spikes in the VIX, playing UVXY is a time game going long. UVXY went from $12 to $120 from mid February to mid March & is now down at $45.

Like many other stocks/ETF's the are tens of different strategies on the VIX & UVXY.

For now a few simple option strategy combinations, that have been discussed & written about previously.

UVXY historical price after a reverse split is approx $36, usually splits around $7 - $8 price

Using a basic option price calculator, theoretical results are approx, as follows.

http://www.option-price.com/index.php

With UVXY (long option) high IV 130%++ seeing its historical decay, an ATM 365 day to expiry covered call will pay approx $16, basically a drop to $20 is breakeven.

On the other side an DITM covered call at $18 will pay approx $24, downside to $12

Then there is the vertical debit spread, $10/$18 strike, cost $4 ($28-$24), max loss $4.

And of course with the decaying stock price & time decay its always best to close the options positions if the trade is about to lose money, or close on a profit.

Then there is the puts, just selling puts.

The ATM $36 put should pay ~$16

The $18 put should pay ~$5

The $10 put should pay ~$1.67

Combination trade

Lets take the next post reverse split, with the stock at $36, sell the long 365 day to expiry call & put ATM, receive ($18+$16) $36. Downside to $2, upside to $70

OP be interested in your personal views & opinion on swing trading, the strategies, any successes & failures?
 
unconventional wisdom said:
using TSLA as an example, when it was trading at around $700 a few months ago, I believed that it was in bubble territory. To outright short it requires a margin trading account and when it went to $900 I would have likely been liquidated.

What I actually did is buy Sept 2020 $500 puts. Tesla went to $900, my puts went down in value as expected, but when TSLA finally went below $400 in March my puts went through the roof - one of the most profitable trades I've ever made.

Buy puts if you think the price is going down but you aren't sure when. Buy calls when you think the price is going up but you don't know when. (e.g., if you think oil will recover buy 2021-2022 calls).
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I see, it provides a barrier against volatility and risk over the course of time, whereas a normal short leaves you open to having your broker wipe out your margin account.

I imagine a ton of guys are buying calls for cruise stocks and oil right now.

Are you making the options contract directly with the broker, and can you pick it up whenever you want regardless of the market?
 
never2old said:
instead of trying to guess what might be a long term single winner such as AAPL or AMZN, why not just buy & hold long on one of the indices or the leveraged 3x, sell covered calls on the long & ride the wave - it could be that simple, what could possibly go wrong?
More...

The indices offer what, a 5-7% return per year? You can definitely make more than that swing trading and day trading if you have a feel for things. I am not a nostradamus, I just bet on how the market reacts and spot trends and quite frankly, it has been relatively predictable short term trading.

For example, BA is a stock I have made a high % on during corona.
The swings from 97 to 175 , the drop again, and the rise again, I have profited twice at around 80% of the investment. $10k at 97, sold at 175 cuz I knew the market was just looking for positivity with uncertainty of corona, lots of pumping and dumping, lots of people not looking at debt, just thinkign BA was too big to fail because it also supplied govt missiles, products etc, so things were inflated.
After it dropped again to 126, I thought ok time for a long, and it's up 23%. As of now have doubled my initial investment even though stock has not doubled while not really risking too much. I will likely sell BA next week as it's headed for another drop when people realize demand for aviation is going to be low, not enough bodies to fill seats and fulfill orders of aircraft.
 
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