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hyten1

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Posts posted by hyten1

    2012 YTD rate of return

    in General Discussion

    Posted

    just spit balling/thinking out loud (i am sure everyone is already know this)

     

    so if you have a stock that you have very high conviction of and you think the stock is cheap, very cheap you can

     

    1) sell naked put of this stock (at lowe strike price)

    2) use the proceed form 1) to buy call on thee same stock

     

    if stock drops you can to exercise both 1 and 2 (which you are ok since you think the stock is cheap you would buy anyways)

     

    if the stock pops 1) and 2) are both in the money

     

    On top of that can't you do this for stock that you like but are not cheap enough now, execute 1 and 2 at decent low strike price or just do 1) are decent low strike price.

     

    hy

    Write put options, company spin off a piece

    in General Discussion

    Posted

    folks

     

    i was wondering if someone knows this, what happens if you wrote a put options on a company that spin off a piece of it self?

     

    for example SHLD are in the process of spinning off a piece, currently shareholder of shld got the write SHORS to buy the new spin off at a pre determine prices

     

     

    how does the above event affect someone who wrote a put options on for example SHLD?

     

    thanks

     

    hy

    2012 YTD rate of return

    in General Discussion

    Posted

    i am curious about your statement

     

    "However, most of the time the consistent profits are in writing options, not buying them, because the writer has to accept the risk of a large loss if there is a big move, while the buyer wants to profit from a big move upward or gain protection from a big move downward. "

     

    just curious on why you say this? I am not saying you are wrong or right, I am just curious as a beginner in options.

     

    hy

     

    hyten1

     

    The psychological underpinning for this dynamic is beautifully described in Chapter 29 on Kahneman's book Thinking Fast and Slow, when he uses the following example:

     

    In each of the four examples below your chances of receiving $1mm increases by 5%.  Is the news equally good in each example?

    A.  0% to 5%

    B. 5% to 10%

    C. 60% to 65%

    D. 95% to 100%

     

        From an expected value standpoint all four scenarios have equal value.  However from a psychological standpoint, Scenarios A and D are much more valuable (A introduces upside that previously was not there, and D eliminates all remaining downside risk).  For this reason people will gladly pay a premium over the probability value for scenarios A and D.  This dynamic is the foundation the insurance business, lotteries, Las Vegas gambling, lawsuits and countless more.  If you think of written option premiums as insurance that introduces upside, (or eliminates downside risk), Twacowfa's statement will make sense.

     

    onyx1, hmm thanks, let me think about this one.

    2012 YTD rate of return

    in General Discussion

    Posted

     

    LOL  your sure fire formula for turning poor results around 180 degrees.  :)

     

    But wait a minute.  Let's take a deeper look at what you have said.  Most people buy puts or calls.  They don't write them.  However, most of the time the consistent profits are in writing options, not buying them, because the writer has to accept the risk of a large loss if there is a big move, while the buyer wants to profit from a big move upward or gain protection from a big move downward. 

     

    It's like what my favorite insurance company does in insuring against catastrophes.  They make about 20 % per year on their capital on average, by jumping in and writing extra business when rates spike after a big disaster when other insurance companies are licking their wounds and refusing to take on that risk cheaply anymore.  But eventually they will have a bad year, and they and their investors need to be prepared for that.

     

    These writers of options or insurance are profiting from the only virtually sure thing in finance: that volatility will always regress to the mean.  ( except when the world ends or the asteroid the size of Manhattan actually strikes Manhattan ).  Those who take on large risks try to lay off their bets in some way by diversification into (hopefully) non correlated risks or hedging, like Eric sometimes does. 

     

    The most successful will buy (an option) low (when implied volatility is low or when the potential move in price is very great) and sell (write an option) when the implied volatility is very high or the potential adverse move is very low.  They will also hedge as much as possible cost effectively.

     

    By the way, the term, implied volatility, is a misnomer.  It's really a fear factor.  For example, the S& P 500 recently rose about 2% in one day.  Yet the implied volatility of index options actually went down dramatically that day instead of up as the historical volatility of the index increased.  However, if the S&P 500 had gone down a large amount instead of up that day, the implied volatility of its options would have certainly increased.

     

    twacowfca,

    If I want to write put options on something I would like to own at a lower price, and use the proceedings to invest somewhere else – for instance in something that I like as much, but I consider to be already at a price undervalued enough –, do you know a broker that works also in Italy and that will allow me to do so?

    I tried with both Banca Intesa and Unicredit, but I failed… They don’t let me do that on companies listed in stock exchanges outside Italy…

    Maybe it’s a silly question, because you don’t know anything about Italy, but you seem a master of the trade, so I try to ask you anyway.  ;)

    It would surely be very nice to have some float I could work with!

    Thank you very much,

     

    giofranchi

     

    giofranchi,...

     

    you will definitely be able to write put options in real time with "Interactive Brokers"

     

    http://www.interactivebrokers.com/ibg/main.php

     

    http://www.interactivebrokers.com/en/ibglobal_sites.php

     

     

    They also have a multi-currency platform, thus... USD, EUR, CAD... you can have integrated sub-accounts in any currency with your main account. Interactive Brokers are worldwide leaders for option trading. And some board members mentioned that they are also customers. Hope this helps. Cheers!

     

    Thank you very much berkshiremystery!

    You are always very helpful! And I will check them out asap.

    Just one more question:

    Do you think they will let me write naked put options, or that they will ask me to cover them with cash? My idea of getting some float to invest doesn’t work, if I must put aside the cash to eventually buy shares at the strike price. Right?

     

    giofranchi

     

    Gio,...

     

    I just asked this question Eric,... because he seems to be with IB,...  ::)

     

    so let's wait for his answer,... I'm as curious as you to know this....    ;)

     

     

    I know I am not Eric, and I dont deal with IB - TDwaterhouse.  Writing Naked puts requires you to put up collateral.  Say you write puts on a $30 stock for $3 and the puts exercise at $25.00.  You get $3 up front.  If the stock drops you keep using margin, or your cash balance up, ultimately to the price of the underlying stock.  You can start with a net cash position and end up with a margin call very quickly.  The only times I have ever had margin calls is when I have written puts.

     

    I gave up this practice.  There are other ways to earn income. 

     

    I understand what Eric does and it works for him.  I have no opinion on anything else about the strategy.

     

    Collaterl must be cash? Why can it not be shares of other companies you own? If the strike price is low enough and the company is one I would like to own for a long time, I would be glad to sell some shares in other investments, to buy a stake in the company I sold naked puts on.

    I know it is not without risk, but, if thought out conservately, I believe it could work.

     

    giofranchi

     

    gio that is my take as well

     

    i have been using put writing as a way to get some cash at the same time i do it on stock that i wouldn't mind owning, especially at these low strike prices that i am writing puts on.

     

     

    2012 YTD rate of return

    in General Discussion

    Posted

    uccmal

     

    i am not sure what you mean regarding writing puts, i have done it and i usually pick strike prices that is extremely low (i also have cash around)

     

    for example I wrote BAC Jan 14 puts with strike of $5, I got 0.77 per share for it

     

    in the event BAC hits $5 i'll be happen to exercise this option (this mean I am buy BAC at $4.23 per share)

     

    how come you get margin calls so easily?

     

    hy

    2012 YTD rate of return

    in General Discussion

    Posted

    twacowfa,

     

    i am curious about your statement

     

    "However, most of the time the consistent profits are in writing options, not buying them, because the writer has to accept the risk of a large loss if there is a big move, while the buyer wants to profit from a big move upward or gain protection from a big move downward. "

     

    just curious on why you say this? I am not saying you are wrong or right, I am just curious as a beginner in options.

     

    personally, I found it strange and advantages to me that a few months ago i could sell/write put options for some stock at extremely low strike prices (i don't see how they can get to these strike prices unless something extremely bad happen) at a above 10% return with the proceed i get.

     

    part of me feel like, these are like free money that i am picking up. but they soon disappear as stock market went up and the % return on the proceed seem not to be worth it.

     

    just curious if anyone/everyone can provide your opinion/reason on the above?

     

    since i am new to options (just started using it this year)

     

    hy

    2012 YTD rate of return

    in General Discussion

    Posted

    i am new at options, for me i never really got the hang of options in the past, but this year, it suddenly just clicked, not saying i am an expert at it. i still have a lot to learn.

     

    i mainly use it for some extra income (especially sellings put, where i see the strike price relative to the proceed i get is attractive). especially when the likelihood of some of these stock getting to some of these low levels just seem very improbable. also i sell put were if the strike price is hit i wouldn't mind (I actually would be happen) to purchase some of these stocks at these extremely low prices. there are definitely risk. put i think this is will prob give me 1 or 2 extra % annually for the entire portfolio.

     

    however, now i am trying to broaden my use of options to use it to lever up my varies long position or to protect the downside when appropriate. this is the area that i am still getting a hang of.

     

    i think this is area were from what I can tell eric is good at.

     

    hy

     

     

    2012 YTD rate of return

    in General Discussion

    Posted

    eric i know you do quite a lot of options (or maybe i am wrong), I just started dipping my toes into options this year, have been selling quite a few puts to get some cash.

     

    by no means is this strategy that will generated considerable amount of return, it might give me an extra 1 or 2% per yr

     

    eric, would you mind sharing some of your options strategies and thinking? for example I understand you are big in BAC, do you just by calls mostly for the outsize return?

    Agency reits (nly, anh etc) vs traditional saving & loan/bank

    in General Discussion

    Posted

    folks,

     

    interested in hearing everyones opinion on agency reits (nly, anh etc)

     

    at the end of day these reits are very similar to bank they having funding cost 2% (reits) vs 0.50% (bank) and they earn interest on these fund. albeit there are many differences.

     

    if anyone who are interested could comment on:

    - probability of the curve becomes flat or invert

    - the leverage deploy (approx 6x for agency reits) vs traditional bank leverage

    - in the event of the fed fund rate goes up, what are some historical reference to that and how quickly could/do they usually happen

     

    thanks

    hy

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