Great call Tegridy....wish I woulda read this on the 18th. Would have taken a flyer on it. As of tonight, seems too close to your predictions and the options are exorbitant. When I finally caught up with the forum( several days behind) I looked up the quote but had to scroll back to the date of your post. You might not qualify as my "Huckelberry" but darned close .Made some decent money investing in some of the things I've read here. Your 30% gain over the past week on RMG could have been one of them if I had kept up.

Kudos where kudos are due....also tip of the hat to GSZG Thanks Jerry, looked at your rec's and seemed like a space that I needed to be in. I am less leery of ETF's than I am of high flying individual stocks with no P/E. You had a coupla of ETF's and a coupla of individual stocks that have been gang busters. You don't know me but, you will if we ever layover together. I'll be the guy that will be buying you drinks and dinner. That is of course, if they let us outta the room on international layovers One can only hope.

BTW...mods need to shear these last 25 or so pages off and make it a thread of its own. Folks have done remarkable well at keeping this on track

Might also be nice to have a thread dedicated to retirement for the same reasons

Misspoken....thanks to you too. Been dabbling in leveraged ETF's and options as a hedge for 40 years, but some of the defined risk, capital efficient option spreads from tastyworks will be entertaining to pursue during my retirement.

 

Maybe someone can help me here. The following is from Investopedia explaining a bull call spread...

"A Real World Example of a Bull Call Spread

An options trader buys 1 Citigroup (C) June 21 call at the $50 strike price and pays $2 per contract when Citigroup is trading at $49 per share.

At the same time, the trader sells 1 Citi June 21 call at the $60 strike price and receives $1 per contract. Because the trader paid $2 and received $1, the trader’s net cost to create the spread is $1.00 per contract or $100. ($2 long call premium minus $1 short call profit = $1 multiplied by 100 contract size = $100 net cost plus, your broker's commission fee)

If the stock falls below $50, both options expire worthlessly, and the trader loses the premium paid of $100 or the net cost of $1 per contract.

Should the stock increase to $61, the value of the $50 call would rise to $10, and the value of the $60 call would remain at $1. However, any further gains in the $50 call are forfeited, and the trader’s profit on the two call options would be $9 ($10 gain - $1 net cost). The total profit would be $900 (or $9 x 100 shares).

To put it another way, if the stock fell to $30, the maximum loss would be only $1.00, but if the stock soared to $100, the maximum gain would be $9 for the strategy."

I can't understand why the $50 call is only worth $10. I would have thought it would be worth $11....Anybody?

 

Your math is correct;

the difference in price of the underlying and the strike is the part of the value. I’m not sure where they get their math, but it’s an incomplete example. Their example assumes the contract is held to expiration and only takes into account what is called intrinsic value. Example;

You buy a $30 call on DAL and the price goes to $40. Intrinsic value is $10 and your profit is the $10 minus the premium you paid.

HOWEVER; if it is not expiration day for the contract, let’s say 30 days before it expires, the contract is worth $15. Why? The extra $5 is EXTRINSIC value. Extrinsic value gets a little complicated (this is where the black sholes model comes in) but suffice to say the extra $5 in premium is made up mainly of time value and volatility premium. Let’s say 30 days of time is worth $4 and the other $1 is due to inherent volatility in the underlying and market in general. Extrinsic value is finicky, and you don’t need to dig too far into the weeds with it. Main point is that the premium is intrinsic value+extrinsic value.

 

I put on the 19 Feb 3000/2900 AMZN spread this morning for a $31 credit on 5 contracts. It's down about $100 in total. The $3000 Put half is up about $1500. Had I done it the way I normally do, I would be selling another put and putting a stop limit on it in case the market takes a dive. I get how this works, but I prefer to just sell naked puts and put in stops. I'll watch it for awhile, but I will sell out of the 2900 Put at $72 (I bought it at $70), and ride the sold puts.

Thanks for the info.

 

Thanks....yea my bad. I cut and pasted only the relevant part that was confusing to me (that lost $1). Their whole example had the other applicable parts. I am/was comfortable with options except when they threw me a curve ball with that $10 not the $11. I bailed out like a weak kneed sissy

 

Whatever works; but with the spread uses $35k in BP vs $300k. For me it’s a no brainer to use a spread. If the underlying is down on a put credit spread, a naked call will be down too.

If you sell the $2900 put back you now have 5 $3000 puts and will use $1.5 million in buying power (if I’m understanding what you’re doing right now). An important part of selling an in the money put spread is that this is more of a theta decay play (time decay) so time ticking away is where you’re going to make your money all while limiting downside and preserving buying power.

But, got to do what you’re comfortable with.

 

It is difficult for me to get my head around what a reasonable spread is. The one I put on has a $100 spread less the $31 premium, but in order to see any real money it seems that you have to put on a LOT of contracts, an then the danger zone can leave you open to having all those contracts assigned but then not being stopped at the bottom. The worst possible scenario would be to have the stock price at $2901 on expiration day which means you have to buy $1.5 million worth of AMZN and it is already underwater. Yeah I know... you have to watch it to know when to fold up your tent. But like I said, that is the part I am having a hard time getting my head around, especially with a big dollar stock and the volatility it can have from time to time. But again, thanks for the discussion. The brain exercise does give me something to think about anyway. I am just not sure if this method is right for me.

One other thing. On this spread, the leverage percentage gain is a LOT better than straight put selling. However, one does not use percentage to buy things.

Have a great Christmas amigo.

 

I actually look at ROI like that. If I’m risking $10k for $3k in premium that’s yields me 30% return on the money at risk.

For a naked put that risks $300k for $7k it yields 2.3% return on the money at risk.

I should have given an example as to why this is a no brainer to me. However, if your goal is in terms of absolute $ you will never beat “going naked”.

 

Thank you. I pulled the trigger on RMG this morning at 24.50. I had things to do, so set up to leg out at 27.50 and 28. Shoulda held but....cha ching! Kudos.

 

What tools are crowd favorites for locating profitable option trades? Does anyone use Valueline Options Survey?