What are you buying today?

[Gregmal]

12 minutes ago, RedLion said:

 

That's an excellent recommendation, thank you so much. I will look into this option, although at >$500 the position sizing is a bit high for my portfolio even on one contract. 

 

Why not hit the $350s? You'd take in over $50 a share.

[ERICOPOLY]

7 hours ago, Value_Added said:

 

Did you take a look at writing any long term put options?  I’ve been eyeing them but still feel it’s a bit expensive at the adjusted cost basis if put the stock.  Thought I’d mention it because currently, an ATM put with an expiration in January 24 would yield approximately a 15% CAGR and if you got put the stock, would drop your basis to $372/share.  Point being, if you like it at $500/share, $372 offers a much larger margin of safety.

 

 

Long term put options (that you write) are taxed as short term capital gains no matter how long you are tied up in the contract.  So why not instead own the shares and write covered calls?

Edited October 22, 2021 by ERICOPOLY

[Value_Added]

23 minutes ago, ERICOPOLY said:

 

Long term put options (that you write) are taxed as short term capital gains no matter how long you are tied up in the contract.  So why not instead own the shares and write covered calls?

I’ve seen your options strategies throughout the forum and I’m not quite up to snuff in understanding them and the pros/cons that come with them.  I write puts on stocks I want to own if the adjusted basis is my target buy price or lower (and they have over 15% CAGR for the time my money is tied up).  I exit stocks by writing calls at the price I want to exit.  Pretty basic I know but it works for my strategy.  I’m always open to expanding deeper into options but this is all I feel comfortable with now.  Care to explain the above strategy like I’m 5?  Not trying to hijack the thread anymore than I’ve done so feel free to instant message me if you’re up for the challenge of helping me understand.

[IceCreamMan]

46 minutes ago, ERICOPOLY said:

 

Long term put options (that you write) are taxed as short term capital gains no matter how long you are tied up in the contract.  So why not instead own the shares and write covered calls?

 

If you let the underlying shares get put you and then hold them for a year, the capital gains are long-term, right? So that would be a possibility.

[IceCreamMan]

4 minutes ago, IceCreamMan said:

 

If you let the underlying shares get put you and then hold them for a year, the capital gains are long-term, right? So that would be a possibility.

 

Oh, I guess that's only a possibility if the option expires ITM. You're probably thinking about cases where the option expires OTM, I see.

 

Anyway, I think you know what the real answer to your question "why not buy shares and write covered calls" is, Eric  

Edited October 22, 2021 by IceCreamMan

[ERICOPOLY]

14 minutes ago, IceCreamMan said:

 

Oh, I guess that's only a possibility if the option expires ITM. You're probably thinking about cases where the option expires OTM, I see.

 

Anyway, I think you know what the real answer to your question "why not buy shares and write covered calls" is, Eric  

 

Yes, cases where the option expires OTM but also when you get put the stock you restart the clock and need to hold yet another 12 months to get to long-term status.

 

Also, notice that at closing the stock SAM was $517 and the Jan 2024 $500 strike call was approximately $154 whereas the $500 strike put was approximately $125.  Taxes aside, you are risking less with the covered call strategy because $154 minus $17 (which is the amount in-the-money) is $137 and that differential is $12 greater than the $125 put premium. 

Edited October 22, 2021 by ERICOPOLY

[IceCreamMan]

4 minutes ago, ERICOPOLY said:

 

Yes, cases where the option expires OTM but also when you get put the option you restart the clock and need to hold yet another 12 months to get to long-term status.

 

Also, notice that at closing the stock SAM was $517 and the Jan 2024 $500 strike call was approximately $154 whereas the $500 strike put was approximately $125.  Taxes aside, you are risking less with the covered call strategy because $154 minus $17 (which is the amount in-the-money) is $137 and that differential is $12 greater than the $125 put premium. 

 

There are two reasons for this. First, it's not apples to apples because the $500 put is slightly OTM (3+% cushion) vs. the call that's already ITM (immediately at risk for the first 3+%). Second, selling the put is >100% leveraged position (cash credit for notional exposure; no cash outlay).

 

The leverage is what I was alluding to in my prior post. If you have a broker with a 1% margin rate it probably doesn't matter which way you put on the position, but if your broker charges more than 1% margin then the options market provides cheaper financing.

 

[ERICOPOLY]

19 minutes ago, IceCreamMan said:

 

There are two reasons for this. First, it's not apples to apples because the $500 put is slightly OTM (3+% cushion) vs. the call that's already ITM (immediately at risk for the first 3+%). Second, selling the put is >100% leveraged position (cash credit for notional exposure; no cash outlay).

 

The leverage is what I was alluding to in my prior post. If you have a broker with a 1% margin rate it probably doesn't matter which way you put on the position, but if your broker charges more than 1% margin then the options market provides cheaper financing.

 

1st point.

The option premiums are $154 for the calls vs $125 for the puts.  That differential is $29.  That $29 already takes into account the $17 that is in-the-money on the calls, and I'm saying there is an extra $12 to boot.

 

2nd point.

Yes, no margin cost with naked puts so the margin costs needs to be known.  However, if this is cash-covered puts the covered calls may be better unless you earn enough interest on your cash to meet or exceed $12.

Edited October 22, 2021 by ERICOPOLY

[IceCreamMan]

2 minutes ago, ERICOPOLY said:

1st point.

The option premiums are $154 for the calls vs $125 for the puts.  That differential is $29.  That $29 already takes into account the $17 that is in-the-money on the calls, and I'm saying there is an extra $12 to boot.

 

2nd point.

Yes, no margin cost with naked puts.  However, if this is cash-covered puts the covered calls may be better unless you earn enough interest on your cash to meet or exceed $12.

 

Yeah, it's the financing cost. I was assuming a margin account.

[JRM]

Adding to Altus Midstream (ALTM).  Moved up to $90 this week, then news broke yesterday of a merger with Eagle Claw.  Stupid move today on the news that really looks like insider were trading on earlier in the week.  Crazy stuff.

[dipod]

INTC. Seems like a big overreaction to their quarterly results.

[throw123]

INTC

[E. Nashton]

FB

[Lance]

MSB

 

Thanks

Lance

[fareastwarriors]

Some fb 

[Gregmal]

47 minutes ago, Lance said:

MSB

 

Thanks

Lance

The end game is coming into focus now. Today’s remarks make that clear. 

[backtothebeach]

Added to  STLC

[ERICOPOLY]

First time buyer of FB today

[formthirteen]

IIVI (two six)

Edited October 25, 2021 by formthirteen

[throw123]

fb

[fareastwarriors]

some FB during regular market hours

[E. Nashton]

On 10/22/2021 at 11:23 AM, Dean said:

FB

 

Some more FB. 

[RedLion]

On 10/21/2021 at 11:59 AM, Gregmal said:

 

Why not hit the $350s? You'd take in over $50 a share.

 

I'm going to look into doing this. I've just finished setting up a 401k for my business and should be making the max employee contribution this week. I've set this account up for limited options privileges at Schwab. This should be great for cash secured puts, although the account will only be starting with $19,500 so even the $350s would be slightly out of range. I have a taxable concentrated portfolio of common stock (mostly alternative asset managers) that are sitting on significant capital gains, and am trying to put as much money as possible into tax deferred accounts so I have more flexibility to pursue some options strategies/trading/higher yield investments. I've really enjoyed reading your posts and the thread on APTS is part of the reason I paid for membership.

[rkbabang]

Jan 2023 $250 TSLA puts.  Probably a total loss, but in the event of a market crash in the next year or the unlikely event that people coming to their senses about TSLA it could pay off.

 

[Gregmal]

10 minutes ago, RedLion said:

 

I'm going to look into doing this. I've just finished setting up a 401k for my business and should be making the max employee contribution this week. I've set this account up for limited options privileges at Schwab. This should be great for cash secured puts, although the account will only be starting with $19,500 so even the $350s would be slightly out of range. I have a taxable concentrated portfolio of common stock (mostly alternative asset managers) that are sitting on significant capital gains, and am trying to put as much money as possible into tax deferred accounts so I have more flexibility to pursue some options strategies/trading/higher yield investments. I've really enjoyed reading your posts and the thread on APTS is part of the reason I paid for membership.

Thanks my man. No problem. Love helping folks out and when Im not annoying them with politics hopefully allowing them to see investing is not that hard you just have to rejigger the framework sometimes and that you dont need a financial professional in order to take care of yourself. 

 

Tangentially, folks too often become infatuated with specific companies, names, tickers, etc. The only thing that matters is the money you stand to make or lose. So for the above, the most likely scenario is you get $50 against a ~$500 stock for a couple years tie up. I'd actually probably move up a year to the 2023 $350s and just take the $35. Then you can either hit it again as those get closer or roll down again for another year. SAM is kinda a quirky stock...its really good value if you get put under $400 and pretty poor value over $500(just my opinion), and either way you know there's buyout upside solely because the big boys are shitty allocators and will pay up for good brands and shelf space, both of which SAM has.