BenTheGoodAg said:
NRD09 said:
Ben here's a scenario i typed out for my dad the other day that shows how powerful a tool options can be in growing your portfolio (and how they can be used with very little risk):
Msft got hammered on 12/15, i sold 220 strike cash covered puts expiring 12/18 for 7.25 each. Got assigned shares leaving me with a cost basis of 212.75. On 12/22 i sold 225 calls expiring 12/24 for 1.02 lowering my basis to 211.73. They expired worthless so tuesday i sold 225 strike calls expiring thursday for 2.05, leaving me with a basis of 209.68. Those expired worthless yesterday so i could either sell the shares at current after hours price of 222.5 for a return of 6.1% in 2 weeks (!) but what I'm going to do is sell weekly 225 calls again, further lowering my basis and increasing eventual returns.
Full disclosure, I don't fully understand some of the mechanics and language used in your post, other than a basic understand of how calls and puts work. I do understand how they can be used to cover risk, but I get a little lost in the language, and what opportunities are really available at what times.
Buying stock is going Long the company.
Selling stock is going Short the company.
Buying a call is buying the right to purchase stock long at the noted price, strike price, if the stock is trading at or above that price at the date the option expires.
Buying a put is buying the right to sell stock short at the notes price, strike price, if the stock is trading at or below that price at the date the option expires.
Selling a call is selling the obligation to sell stock short at the noted price, strike price, if the stock is trading at or above that price at the date the option expires.
Selling a put is selling the obligation to purchase stock long at the noted price, strike price, if the stock is trading at or below that price at the date the option expires.
What terminology is confusing? Do you need an example? I have time and am willing to help.
