Options

[Eye4Valu]

I’d like to learn more about options. Is there a book or thread you would recommend? What are the best ways to buy or sell options utilizing a value framework? TIA for any insights you’re willing to share.

[boilermaker75]

Three I would recommend

 

LEAPS by Harrison Roth

 

Options for the Stock Investor by James Bittman

 

McMillan on Options by Lawrence McMillan

 

Edit: My suggestions may be dated as I read these more than 20 years ago and they might not be inexpensively available.

[rb]

Pretty much the first book you start with in this space is Options, Futures, and Other Derivatives by Hull.

[tede02]

This is not an academic or how-to book but the section of The Big Short describing Cornwall Capital's first big successes buying long-calls on Capital One in the early 2000s was very interesting. The book describes how they figured out that option models tended to misprice situations where a binary outcome existed (recalling this off the top of my head). It is very interesting. Joel Greenblatt's book, You Can Be a Stock Market Genius, also gives a number of case-studies where options were utilized. Worth noting that these books largely highlight situations that worked. Buyer-beware - Options can wipe you out if you don't know what you're doing.

[Pelagic]

If you prefer to learn through video, Tastytrade has tons of videos on options education that cover the basics and more advanced concepts as well.

 

https://www.tastytrade.com/learn

 

Fair warning, while they cover many aspects of options well, their strategies aren't in my opinion the best way to utilize options. I'd be leery of many of the systematic approaches they advocate that don't depend on a fundamental insight into value. Markets are smart and price options quite efficiently most of the time. Just because you "win" on 80% of trades doesn't mean you won't lose money overall.

[boilermaker75]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

[DooDiligence]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Not a get rich quick deal, smartest strategy around.

[JRM]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Huh?  Are you sure about that?

[boilermaker75]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Huh?  Are you sure about that?

 

You write a put with a strike at 200. If the stock closes above 200 at expiration you have no stock but made the put premium. If the stock closes below 200 you still made the put premium but you buy the stock at 200 and have 100 shares.

 

Instead, you decide to buy 100 shares of the stock at 200 and write a call with a strike at 200. If the stock closes above 200 you have to sell the shares but you made the call premium. If the stock closes below 200 you still have the shares and the call premium.

 

It each case you finish with the same outcome.

 

Edit: Any strategy you do with puts, you can do with calls. It is referred to as put-call parity.

 

[JRM]

ok, so you're comparing a covered call to a cash secured put.  100% downside potential with defined upside. I'm on board now.

[LC]

Or, for the visually-minded:

 

[Buckeye]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Hello boilermaker75,

 

Could you please explain how this process works?

 

Thanks so much,

 

Buckeye

[boilermaker75]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Hello boilermaker75,

 

Could you please explain how this process works?

 

Thanks so much,

 

Buckeye

 

Buckeye,

 

As an example, at the close today you could write 242.50 strike March 5 expiration puts for about $0.80. Probably a much greater than 50% chance these would expire tomorrow and you would pocket the put premium. If near the close tomorrow BRKB was actually trading  below 242.50, you could write the Oct 12 242.50 strike calls, probably for at least a couple of bucks.

 

There are times you will have to hold the BRKB position if the price falls too much. But it has always been safe holding BRKB till I can sell it for more than the price I was put to.

 

I also have acquired all the BRKB I am holding long-term this way. I was the put writing as a limit order.

 

Boiler

[Buckeye]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Hello boilermaker75,

 

Could you please explain how this process works?

 

Thanks so much,

 

Buckeye

 

Buckeye,

 

As an example, at the close today you could write 242.50 strike March 5 expiration puts for about $0.80. Probably a much greater than 50% chance these would expire tomorrow and you would pocket the put premium. If near the close tomorrow BRKB was actually trading  below 242.50, you could write the Oct 12 242.50 strike calls, probably for at least a couple of bucks.

 

There are times you will have to hold the BRKB position if the price falls too much. But it has always been safe holding BRKB till I can sell it for more than the price I was put to.

 

I also have acquired all the BRKB I am holding long-term this way. I was the put writing as a limit order.

 

Boiler

 

Hello Boilermaker,

 

Thank you for taking the time to respond, I appreciate the help!  You had recommended 3 books earlier in this thread (pasted below).  Is there any one of them that you would suggest starting with?

 

Thanks!

 

Buckeye

 

 

Three I would recommend

 

LEAPS by Harrison Roth

 

Options for the Stock Investor by James Bittman

 

McMillan on Options by Lawrence McMillan

[boilermaker75]

I have a simple strategy I have been following for 6 years. I continuously write BRKB puts. I have never had a loosing trade. Yes I have been put to on occasion, but I either have kept the shares, all of which are above my purchase price, or turned around and wrote covered calls. Note writing a covered call is equivalent to writing a put.

 

Hello boilermaker75,

 

Could you please explain how this process works?

 

Thanks so much,

 

Buckeye

 

Buckeye,

 

As an example, at the close today you could write 242.50 strike March 5 expiration puts for about $0.80. Probably a much greater than 50% chance these would expire tomorrow and you would pocket the put premium. If near the close tomorrow BRKB was actually trading  below 242.50, you could write the Oct 12 242.50 strike calls, probably for at least a couple of bucks.

 

There are times you will have to hold the BRKB position if the price falls too much. But it has always been safe holding BRKB till I can sell it for more than the price I was put to.

 

I also have acquired all the BRKB I am holding long-term this way. I was the put writing as a limit order.

 

Boiler

 

Hello Boilermaker,

 

Thank you for taking the time to respond, I appreciate the help!  You had recommended 3 books earlier in this thread (pasted below).  Is there any one of them that you would suggest starting with?

 

Thanks!

 

Buckeye

 

 

Three I would recommend

 

LEAPS by Harrison Roth

 

Options for the Stock Investor by James Bittman

 

McMillan on Options by Lawrence McMillan

 

I would go with McMillan on Options. You will find anything you are looking for on options in that book. The fifth edition gets 4.7 stars out of 443 ratings at AMZN.

[Buckeye]

Perfect, thanks boilermaker! I will read up before I bother you with any more questions:) Thanks for the help.

 

Buckeye

[boilermaker75]

Perfect, thanks boilermaker! I will read up before I bother you with any more questions:) Thanks for the help.

 

Buckeye

 

Buckeye,

 

Bother me anytime. Least I can do for a neighbor! I don't guarantee I will have the answers, but if I do I will try.

 

Boiler

[Mephistopheles]

Something I have done just 3 times thus far, but I think is a cool strategy. It works only during crashes or periods of significant price distortions:

 

Buy far far OTM leaps or buy somewhat OTM calls that are only a few months out.

 

This puts up very small amounts of capital with potential huge payoffs.

 

But I like to go an extra step, which will protect if the call ultimately goes to zero. If the stock moves up a bit, then I sell a covered call at a higher price at the same or even a bit higher premium than the original OTM call.

 

At this point I have free bull spread with a potential massive upside.

 

Basically, I am betting that I will be able to turn the situation where I can get my money back with a small amount of extra volatility or price movement and maintain a huge upside for free.

[LC]

That's a great idea - and I assume it can also work on the downside as well. E.g. you buy a long term OTM put and if the stock decreases maybe 20%, you have paper gains on the position but  the option is still OTM, so you can sell a deeper OTM put to capture some gains. 

[backtothebeach]

Something I have done just 3 times thus far, but I think is a cool strategy. It works only during crashes or periods of significant price distortions:

 

Buy far far OTM leaps or buy somewhat OTM calls that are only a few months out.

 

This puts up very small amounts of capital with potential huge payoffs.

 

But I like to go an extra step, which will protect if the call ultimately goes to zero. If the stock moves up a bit, then I sell a covered call at a higher price at the same or even a bit higher premium than the original OTM call.

 

At this point I have free bull spread with a potential massive upside.

 

Basically, I am betting that I will be able to turn the situation where I can get my money back with a small amount of extra volatility or price movement and maintain a huge upside for free.

 

The disadvantage of turning it into a vertical spread is that it prevents you from closing the trade early at an opportune time at anything close to max profit.

 

So maybe this is good for slow movers, but with more volatile stocks you could be absolutely right with the direction, but will find that the price of your short option has also zoomed up. Then while you are waiting for the short option's time value to erode, the stock may mean revert, reducing or erasing the gain on the long option.

 

I find it psychologically easier to sell shorter term options (turning the trade into a diagonal or calendar spread) to whittle down the cost of the longer term option. More opportunites to adjust, roll up the short, sell less short options than you have longs, get out of the way completely if you sense an upcoming jump in the price, go way OTM with the short call during earnings, etc. etc.

 

To each his own of course, there is no objectively better/worse way to do option spreads.

 

[Pelagic]

This is actually a surprisingly good post from WSB on options Greeks. The formula for calculating the implied leverage an option grants a purchaser is an interesting way to look at it, note that some options on volatile stocks like GME actually have less leverage than simply buying shares.

 

[LC]

Speaking of options - does anyone have a good resource to find options pricing?

 

By "good" here I mean quick to access, easy to select strikes, and intuitive to view.

 

My brokers all have this information in one way or another, but it's quite a hassle to log in, navigate to the options pricing/chain section, etc. etc. etc.

 

Wondering if there's an easy resource out there on the web.

[Agrippa07]

Speaking of options - does anyone have a good resource to find options pricing?

 

By "good" here I mean quick to access, easy to select strikes, and intuitive to view.

 

My brokers all have this information in one way or another, but it's quite a hassle to log in, navigate to the options pricing/chain section, etc. etc. etc.

 

Wondering if there's an easy resource out there on the web.

 

Yahoo finance is decent and easy to use. Not a big fan of the layout but it's good enough.

[bizaro86]

Speaking of options - does anyone have a good resource to find options pricing?

 

By "good" here I mean quick to access, easy to select strikes, and intuitive to view.

 

My brokers all have this information in one way or another, but it's quite a hassle to log in, navigate to the options pricing/chain section, etc. etc. etc.

 

Wondering if there's an easy resource out there on the web.

 

The Seeking Alpha option chains are pretty good, that's what I use anyway. If you are looking at options and want to switch companies, if you type the ticker into the search bar it will take you directly to the next companies options.

[LC]

Thank you- I’ll give SA a shot