Stocks and Trading Thread - Channeling your inner Mono

[MadImmortalMan]

So for the options thing...getting my feet wet with a small experiment.

Bought 700 shares Alcoa (AA) = -$11,839.64

Sold 7 options (May 17 calls) on AA = +$292.72


So right now, I have the stock. And the cash. And if the people who bought my options don't exercise them before they expire in a month, I keep it all and write another round of options next month. If they do, I sell them my stock at $17 for a small profit of about $70.

[Caliga]

Interesting... I've actually been eyeing Alcoa for a while myself.  One of the reasons I've hesitated is because Cramer has a tendency to push that stock, which automatically gives me pause.

[Admiral Yi]

Is 292 the strike on the options or how much you sold them for?

[DGuller]

Is 292 the strike on the options or how much you sold them for?

The second one is the only logical answer, for a variety of reasons.

[Admiral Yi]

The second one is the only logical answer, for a variety of reasons.

Just a variety, or a cornucopia of reasons?

[DGuller]

The second one is the only logical answer, for a variety of reasons.

Just a variety, or a cornucopia of reasons?

A shitload of reasons, how about that?

[Admiral Yi]

A shitload of reasons, how about that?

The fact that everyone is celebrating your failure to kill Jesus is no reason to get cranky.

[DGuller]

A shitload of reasons, how about that?

The fact that everyone is celebrating your failure to kill Jesus is no reason to get cranky.

Why the fuck do you think I'm cranky?

[MadImmortalMan]

Is 292 the strike on the options or how much you sold them for?

17 is the strike. 292 is the money I got for them.

[Admiral Yi]

17 is the strike. 292 is the money I got for them.

Damn dude, it's 16.96 right now.  Was your plan to just flip it for the 292 dollars?

[MadImmortalMan]

17 is the strike. 292 is the money I got for them.

Damn dude, it's 16.96 right now.  Was your plan to just flip it for the 292 dollars?

Yeah pretty much. Unless it doesn't get exercised. Then I can do it all over again. It has to go farther in the money than just breaking even for the option buyer to make money on it, don't forget. He has to make his three hundred bucks back. Plus, he might just be hedging.

[Admiral Yi]

Yeah pretty much. Unless it doesn't get exercised. Then I can do it all over again. It has to go farther in the money than just breaking even for the option buyer to make money on it, don't forget. He has to make his three hundred bucks back. Plus, he might just be hedging.

Sounds like a very crafty play.  But won't the counterparty excercise at 17.01, to minimize his loss?

[DGuller]

Yeah pretty much. Unless it doesn't get exercised. Then I can do it all over again. It has to go farther in the money than just breaking even for the option buyer to make money on it, don't forget. He has to make his three hundred bucks back. Plus, he might just be hedging.

Sounds like a very crafty play.  But won't the counterparty excercise at 17.01, to minimize his loss?

It doesn't seem that crafty to me, it's just a basic option play, which is theoretically zero sum in the end (minus the transaction costs).  MiM just reshaped his returns by cashing in the upside potential of the stock, and leaving himself exposed to the downside movement.

[Admiral Yi]

It doesn't seem that crafty to me, it's just a basic option play, which is theoretically zero sum in the end (minus the transaction costs).  MiM just reshaped his returns by cashing in the upside potential of the stock, and leaving himself exposed to the downside movement.

Good explanation. 

[DGuller]

I'm an expert on this.   I'm about to take my fourth investment exam.  Well, technically I'm taking the same exam for the fourth time, but still.