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Any recommendations?
I haven't been able to find any non tech stocks that have high enough volatility to make it worth it to me. I suppose higher volatility = more premiums = more risk. Most of the time you'll only get $.30 for a slightly out of the money put for the next month, and the stock price is like $70!!! Very poor premiums. The good news is these are stable stocks so you almost never get assigned, and if you do you usually get shares that pay healthy dividends. I've considered UPS in the past (looks like I should have done it based on the graph), but timing is key because if the stock is sitting between strikes, it makes it unattractive to do the write. Let me know if you find anything that works pretty well.
AMD is my high risk play, and I play it as such. I think everyone needs at least one or two of these. It makes up for the stagnation of an overall conservative portfolio.
HailMary
I don't like stop losses at all though, because a stock can gap right past them! You can really get burned on a sudden V-dip caused by an incorrect rumor.
I don't like the stop loss that much either, but what can I do? I'm holding long term cap gain and very close to being long term cap gain shares. Buying puts would be an offsetting position, and stupid IRS rules would screw me. I suppose I can buy QQQ puts to protect against terrorists, but that doesn't save me from an AMD screwup (fab burns down, etc.). Until I exit those shares, I'm limited to the stop loss on the downside. It isn't so bad as I would have payed time premiums for the puts which would hopefully compensate for any gap down.
HailMary
go long, sell $17 covered calls, buy $20 long calls to participate in the run, if it happens.
Pretty nice strategy, but it is still exposed on the downside. I'm already long shares, and I don't want to lose my long term cap gain shares just yet. Thanks for the suggestion though. I will use it in the future when I wouldn't mind losing some shares. I suppose I could buy more shares and do this, but that would be even more bullish than I already am.
I do wish I could buy some well out of the money protective puts. Stop loss will have to do. I watch closely so it shouldn't be problem unless we have a terrorist event.
HailMary
IMO you don't want to limit your upside and expose yourself on the downside at the same time. Writing the covered call in this situation is doing just that. If the stock runs up, your profit is limited. If the stock retraces and you want to exit, you will have to repurchase the calls for a loss and then sell your shares.
Buying shares and writing a covered call is saying 'I think the stock is going to sit right where it is'. If that is how you feel, go for it. If you feel this way, but also want some downside protection, buy some puts with the covered call proceeds. This is known as a collar. You have essentially purchased the shares and locked in a maximum profit or loss. I personally don't like it, especially on a volatile stock like AMD.
If you are more bullish, I think a better play is to just buy some shares, and buy protective puts (14s or 15s) or have a stop loss strategy. Don't make it too complicated.
HailMary
I just picked up a sizeable amount of Jan 19 calls for $1.00. I'm shadowing 25% more shares than I did with the Jan 15 calls. I went a little more aggressive and used 75% of the profit I made from the Jan 15 calls. The original Jan 15 call purchase was made using money from put writing proceeds that have since expired. It feels like a free gamble to me, and I still have a profit overall if it fails.
This really is a 'protection' against a huge run up, which I think is likely.
Current AMD position:
Long shares (avg price $8.63)
Long Jan 19 calls (avg price $1.00)
Short Dec 17 puts (avg price $.75)
This is definitely a bullish position with no downside protection save for a stop loss pullout I have in mind (if AMD drops below around $15.50 I will unload everything, and probably roll the puts). I can't buy protective puts because of the IRS rules which would screw my long term cap gains.
HailMary
It looks to me that AMD stock held off last week's brief reversal of momentum, and reversed again. I exited my more aggressive AMD positions (short Dec 18 puts and long Jan 15 calls) on the down spike last week in anticipation of more selling. The fact that there was not a huge selloff tells me there is some strength here. I saw the down spike as a test for some of those long time holders that have nice profits they could take. Looks like many held. I'm all about momentum when I exit or enter a position. I'm often wrong, but I'm right more than wrong, so it works out overall. Nobody can be right all the time. :)
I'm going to pick up some aggressive January calls (Jan 19s or 20s), using only a fraction of the profits I made from the Jan 15 calls (probably 1/2 or less). I can probably cover the same number of shares I had with the 15s. I may lose them, but that is ok to me as long as I make something overall (which is guaranteed at this point). I'm tossing the HailMary. :)
I would also consider just buying stock straight today. I would really like to be very long going into Q4 earnings. I'm using aggressive call options because I want to cover as many shares as possible with limited downside risk.
Time to go buy some calls...
HailMary
I have never understood why people make such a big deal about insider sales (well except for maybe Jerry Sanders and his knack for timing). For all we know this is 5% of their total stock option position. Many AMD and Intel execs have probably been in a holding pattern for a couple of years. These guys can't go without new houses, ferraris, condos, boats, etc. forever! If I was one of them, I would be unloading some too after a long drought. I can't say I hold these actions against them or the company.
HailMary
If you're only writing puts on issues you'd be willing to own then rolling only makes them cheaper if and when you're assigned and it puts more premium in your pocket too!
When do you decide to do the roll, and what would you typically roll over into? Are you rolling to an equal number of puts or more?
My problem with immediate rolling is I base most of my investment transactions on momentum. The stock is most likely in a downtrend when you would play the roll. I don't want to try and catch a falling knife. My stop and rest strategy protects against this a bit. I rest until it appears the falling has ceased (at least a few days). With the roll, you can dig further and further into your cash reserves if the stock keeps dropping and you keep rolling.
So I guess I essentially roll, but I don't do it immediately. Delayed roll is my game.
HailMary
Another thing I don't see anyone else mentioning is rolling options.
On a quickly dropping or rising stock (like AMD), you can roll yourself into the grave. I suppose 1 roll is probably a good strategy, but I prefer the stop loss and rest period approach (for put writes). You have given me something to consider though...thanks. I'll only allow assignment if I'm trying to accumulate (put writes) or lighten (call writes).
HailMary
Here is a decent human readable tax guide for investors. I had it bookmarked. I can't remember if it details what Doug is describing very well or not. I'm going to have to go back and read it myself. It does cover qualified covered calls.
http://www.optionsclearing.com/publications/taxes/taxguide.pdf
HailMary
What happens if the stock closes at exactly 17 at expiration?.
I doubt the put purchaser will choose to exercise at this price, but they have the option to do so. On the call side, it is in your power to exercise or not. Personally I would exercise it, because the stock typically goes up a little after expiration Fridays, but you take the risk that it opens down on the following Monday by doing so. The safe thing is to let it expire, although you'll likely find out on saturday you no longer have any position.
HailMary
So, my take on your statments are choose an underlying stock and adjust the option play to eliminate the spreads based on your expectation of the stock move? That will add the "local" knowledge and eliminate the possibility of choosing the wrong underlying stock?
Most of my examples were academic for illustrating a point about options. In the real world, I don't try to eliminate choosing the wrong stock. I pick stocks just like anyone else. I try to pick good value play stocks that I want to own, and I use options to get into a position with them. I generally use a dollar cost average approach by monthly writing puts until I have the number of shares I desire to have for that stock. By writing puts I am doing better than dollar cost averaging would have done alone on the purchase side, although by doing this I'm eliminating some potential gain from short term upwards spikes. Sometimes I'll use the proceeds for call buying if I think a quick runup is likely, and sometimes I save the cash to allow writing more puts for the next month. I don't just apply this strategy in a dumb way. I look at momentum and sentiment of the stock to pick when to do what.
Are all your investments, options?
No way!!! I don't have the time or energy to do my entire portfolio this way, although I could just use QQQs or something similar. I have considered that instead of individual stocks, but I kind of like the stock picking part of it.
I have to split myself in two. I have a large portion of my worth that is managed in a 401(k) and IRAs. I'll accept an 8% tax sheltered average return there (still hasn't recovered from the last few years). This is all funds. This is my safe haven I can fall back on in case something goes horribly wrong. It isn't enough to retire on, but that is mainly because I am not of the retirement age yet. Many years back I decided I wanted my own account to manage. It started off small, but has grown much quicker than the 401(k) and IRAs even after paying all those taxes. I know I am doing better than average based on this alone. The thing is I didn't use just one strategy to get there, so it is hard to nail down exactly how I did it. I have made money on average buying stocks straight, writing puts, buying puts, writing calls, and even buying calls. Maybe I was just lucky or I have an eye for value stocks, but I think it has to do a lot with paying attention and having some good strategies. I would love to be able to know what I could have done just using put writes with a stop loss strategy and an exit strategy.
If I was retired, I would probably get more conservative and stick strictly to way out of the money put writing, similar to Elmer's strategy.
HailMary
Ya know what? I think I'm tired of this place too.
In all fairness, I believe SemiconEng was a lot more correct overall. The site is right next to the existing site, and about the only thing these 2 fabs are going to share is a entranceway and maybe a small common area. All the really expensive stuff is going to be seperate.
I think his input to this thread is very valuable, given his experience.
I will point out that Hector did say in the conference call that they will leverage some resources by being at the same site. Whatever the resources are, it is probably very small compared to the overall $2.4B, but even $10M saved is $.03/share.
HailMary
speculative and hedging.
Buying stock is speculative - you do that, right? Why do you believe you are any better at buying stocks than anyone else? How do you know you're not the guy who loses 10% every year? You can set up an option position on an underlying stock that can be more risky, the same risk, less risky, or anywhere in between than buying the shares directly in that stock. This is the beauty of options. You can make yourself a customized position. You'll learn this if you take some time to get more experience with them. You will pay a small 'fee' for this which equals the current option spreads (.05-.10 per share) plus the extra commissions (and possibly the time value depending on the strategy). The more complex the strategy, the more this 'fee' will be. For this 'fee' you get the flexibility of choosing how you want to play a stock.
I would be willing to bet (heck I already am in a way) a put writing strategy on QQQs (with a stop loss like I previously posted) would return more over a 10 year period than just buying QQQ shares. There is a factor we are not considering though. Taxes. Short term vs. long term gains. I think you would only win out in a tax sheltered account like Elmer is doing.
And LOL, you should never buy a random spattering of options. You will get zero or less, guaranteed. I'm starting to think that was your original point, and if so, yes, you have to be smart enough to choose the strategy that fits fairly well with a situation. You don't have to be any smarter about the underlying stock though.
You are giving yourself flexibility if you learn how to use options.
HailMary
HailMary, did you mean that? -
I meant it, but I didn't state what I meant very well. I was trying to state the SELLING the put and BUYING the call at the same strike price using this strategy results in a cancelling time value. Today I grabbed some data when AMD was exactly at 17. With this I can illustrate the synthetic stock purchase and also the cancelling time value for any strike price.
Dec 16.00 Call CBOE 1.50 1.65 Dec 16.00 Put CBOE 0.50 0.65
Dec 16.00 Call Amex 1.50 1.65 Dec 16.00 Put Amex 0.55 0.70
Dec 16.00 Call Pacf 1.45 1.60 Dec 16.00 Put Pacf 0.50 0.65
Dec 16.00 Call Phil 1.55 1.65 Dec 16.00 Put Phil 0.55 0.65
Dec 16.00 Call Ise 1.50 1.60 Dec 16.00 Put Ise 0.55 0.65
Dec 17.00 Call CBOE 0.95 1.05 Dec 17.00 Put CBOE 1.00 1.10
Dec 17.00 Call Amex 0.95 1.10 Dec 17.00 Put Amex 0.95 1.10
Dec 17.00 Call Pacf 0.90 1.05 Dec 17.00 Put Pacf 0.95 1.10
Dec 17.00 Call Phil 0.95 1.10 Dec 17.00 Put Phil 0.95 1.10
Dec 17.00 Call Ise 0.95 1.05 Dec 17.00 Put Ise 0.95 1.05
Dec 18.00 Call CBOE 0.55 0.65 Dec 18.00 Put CBOE 1.55 1.70
Dec 18.00 Call Amex 0.55 0.70 Dec 18.00 Put Amex 1.55 1.70
Dec 18.00 Call Pacf 0.55 0.70 Dec 18.00 Put Pacf 1.55 1.75
Dec 18.00 Call Phil 0.55 0.60 Dec 18.00 Put Phil 1.55 1.70
Dec 18.00 Call Ise 0.55 0.65 Dec 18.00 Put Ise 1.55 1.70
There seems to be an infinite supply of people willing to buy puts. There are many cases where buying puts is a part of another overall strategy (a protection or hedge generally). So they are not really poor saps. You cannot tell by looking at a single purchase what their objective is. Regardless there are people buying puts all the time, and they're asking for a time value premium. That time value premium varies hugely as you have noted. On the other side you are buying the call, and in this case you are paying the time value premium. The neat thing is this time value premium is exactly the same as the put when the stock value equals the strike price. And then as the stock moves up and down the time value is inversely proportional so that they perfectly cancel each other out. The put time value may go up, but it will go up by the same amount the call time value went down.
To execute the synthetic stock requires only paying the spread (.05) and extra commissions. Nothing else. Go try it and see for yourself. I don't think I can convince you in any other way as to how it works.
I was going to describe how you don't have to even wait for the stock to hit a strike price to do this strategy and either receive cash or pay cash in advance. I'm not sure I have the desire to make it more complicated than this base example.
Another side thing to think about. I want to buy 100 shares of a company, but I don't. It is selling for $15. Instead I write a $15 put on it that expires next month. The put buyer pays me about $.50x100 = $50. This cash immediately appears in my account. Next month the stock is at $14 and the option expires. I get assigned the shares, and I have to pay $1500 to buy them, but I still have the $50 from before, so my price is really $1450 (in fact for tax purposes you roll what you made in the option write into the cost of the stock). In effect I just bought the shares for $14.50. The put buyer made $100, but I still got to buy shares cheaper than I would have had I just made a straight purchase. Win-win for both sides.
HailMary
You start with $160000 cash. You can
1. buy 10000 shares outright and have no cash left
OR
2. perform the strategy outlined
AND
a. leave the cash as cash and earn your cash trust rate
OR
b. IF you have a lot more equity already in your account (which is likely if you're making a purchase like this), you should have the margin power to cover the put write, so you can put the cash into something better. You can pull the cash back out of this liquid equity at anytime to pay for the assignment instead of using margin.
2% on 160000 is still $3200.
Having said all that, I usually back my put writes with cash, and I never use the above strategy.
I think I'm done trying to make academic examples. I'll stick to my current strategies that I'm actually applying as they are more meaningful in the real world.
HailMary
The point is the underlying value of the options track the stock exactly. The time values will cancel each other out save for maybe a .05 spread. So you 'may' have to pay some additional fixed (not variable!!!) costs for the option vs a stock purchase. If that was your point, you are correct.
Are you arguing that my assumption that stocks on average appreciate?
NO!!! As a put writer I use this fact to my advantage all the time! I'm collecting on it every month! The time value in options would be 0 if the stock never moved. I'm collecting the time value from some poor sap who is buying the put I'm writing and betting against the market!!
As you mentioned, with your strategy you could, with no capital whatsoever, create infinite wealth by writing these synthetic stock options
The strategy I laid out cannot create infinite wealth. You have to have buying power to back the put. You will get assigned the shares if the option expires and the stock is below the strike. You will need the cash to do it.
I write puts and cash ends up in my account seemingly from nowhere. Hey I just had an infinite gain! NO!!! I am backing that write with cash or margin power.
Would you not agree that people buying puts are betting against the trend of upward movement? They are making a short term bet that the stock will go down. 95% of the time they will be wrong, and I'll keep the cash. I'll take that bet anyday.
HailMary
This was an academic example to show an option position can track a stock position (minus fixed costs like commissions).
The spread between the put write and call buy should be very small (.05). I find that the different option markets often differ by more than this, so you could likely even get a zero spread. If we assume .05 that would take another $500 away from your return. It is still made up by the opportunity to use the cash elsewhere. You do risk a bit not getting filled on both sides unless you have a good account to do this with (which I don't yet).
1) you will at best get 1-2% interest on your money (current money market rates).
OK. But if you have enough margin power, you can stick the cash into something that is stable and liquid so you can make 4-5% or more. You just pull the funds out when you get assigned.
2) You will also be required to post substantial collateral when you write a naked option. This is equal to the option premium + 25% of the strike price + The amount the option is in the money.
That is why I used a cash backed put as an example. The cash IS the collateral. It is more collateral than is even required. In fact you would need more collateral to purchase the shares outright on margin than you would to write the puts for the same number of shares.
3) It will be very hard in reality to find a stock that is trading a precisely the strike price at the time you wish to enter the trade. As a result, the intrinsic value premium on one side of the trade will be higher than the other and this will ruin your very thin economics.
Like I said, this was an academic example...hopefully it illustrates to Alan the power of options. Next time AMD is at a strike price (should be tomorrow!), I'll give a peek at the option prices to see how this would have worked out. If I used this strategy I would use it to get additional leverage without having to pay margin interest. I would leave the cash in an investment that I thought could more than make up for the spread and extra commissions paid for the option purchase.
HailMary
I think you missed the point.
Doug's example performs 'exactly' the same as buying the stock, except with the added benefit that you don't actually buy the stock until the option expires, and then you don't even do that if the stock has gone up. During this entire time your cash can be earning money in a money market, or better yet if you have margin power, you could invest that cash into another stock (be careful you can get burned doing this if you get assigned at expiration).
The synthetic stock is illustrated best if the stock price exactly lines up with one of the strike prices at the time you perform it. A hypothetical example, where AMD is exactly at $16. At this price you write 100 December 16 puts for $.75 for a grand total of $7500, and then you buy 100 December 16 calls for the same $.75 for a total of $7500 using the $7500 from the put write you just did. You cash position has not changed. From this point on your return will be exactly the same as if you purchased 10000 shares. The reason this works is the time values of the 2 options cancel each other out regardless of the stock price. What is left is the underlying value of the options which are covering 10000 shares.
The catch?
1. you'll pay more in commissions
2. you can technically get assigned the shares at any time, but this never happens (anyone ever get assigned before the expiration?)
The benefit?
1. you can let the cash earn a nice 4-5% in the meantime until expiration.
In the above example, you would need $160000 in cash (or margin power). If you did the strategy with 1 year out options, you would make $8000 in interest for that year (assuming you had cash). The extra commissions would run you about $500. You could do this quarterly and still come out ahead.
You can combine different strike prices to come up with a nearly infinite set of ways to make a play with options.
You zero sum argument is way off, but I see we're not going to connect here. I'll try to explain why if you want me to, or we can just drop it.
HailMary
you don't want to transfer an account.
I do have a lot of long term shares in various stocks I don't plan on selling for a while that I could transfer, but there is no way I would transfer short term positions. I think I'm just going to have 2 accounts for a while. I don't want to open the new account until I can do all my desired short term trades in it. Probably sometime early next year. I pretty much want a trading account and a long term account anyway. It makes it easier to keep track of how I am using cash. The only downside is I might not have the same option writing power if it wasn't all in one account. I can't think of a situation where I would ever want to risk that much anyway.
HailMary
Yes you can get buried quickly into margin debt on put write assignments if you overextend yourself. In my first few years of trading options in this manner I was a bit overzealous, but those were valuable lessons that can probably only be learned by doing it.
HailMary
I agree this is a good time to own semis, but I think short term AMD is looking overbought. AMD has gone nearly straight up for over a month. A lot of people were hanging on for the ride waiting for a pullback before selling, and I believe that pullback is now. I think this is going to propel the stock downwards a bit more over the next week or so. I won't take a guess as to how low, but I feel it will be significant enough to justify the trades I just made.
I could be wrong of course. If the stock shows some strength over the next few sessions, I'll change my mind because that will signal the overall momentum is still upwards. If this happens, I'll rewrite some puts and maybe just buy some straight shares (instead of buying the calls back). I'm not concerned about missing a whipsaw rebound or taking the minor loss that I did on the options.
I'm just trying to play the momentum a bit. I'm still very long on shares, which I'm holding for long term gains. I still think by January it will be well over $20, assuming this 90nm delay is just a restatement of what was previously said.
HailMary
I hate buying back at a loss too, but I'm anticipating more of a pullback tomorrow and maybe beyond. My loss was not significant. In retrospect I went outside my usual strategy by writing the 18s in the first place. I'm just backing off my bullishness for the short term. I will be looking for a reentry point for writing more puts, but I'm probably done buying calls for a while. It was a good run I had. No need to be greedy.
I'll definitely be checking out Schwab and others (Cybertrader) soon. I have to unload some more before I can fund a new account to my liking (need lots of equity for effective put writing). I'm too lazy to do a transfer of stock.
HailMary
I'll go and listen to the conference call myself to verify what the question and answer was. Is this any different than what was stated the other week at the other conference call about no volume shipments of 90nm until 2H04? I don't think so, but perhaps I am wrong. I was guessing they were clarifying what was said last week. If I am wrong, I'll probably unload the rest of my position tomorrow.
HailMary
Based on the volume and size of the move today, I believe the upward momentum AMD had going has reversed. Today I closed many positions based on this and the supposed 90nm slip comment. I'm pretty sure that statement was taken out of context, but it does not matter as the stock is heading down.
I sold my Jan 15 calls for $2.50 (average purchase price $.89).
I covered my short Dec 18 puts for a loss (sold these the other day for $1.40 - bought back at $1.85 today)
I'm still holding all my shares and I'm still short Dec 17 puts. I'll take the assignment on those if I get it.
I got hit by the stupid case of not hitting the best bid again on Etrade. I tried selling the Jan 15s for the best bid at the time. Then someone walked into my office and was there for 15 minutes. That person and Etrade cost me about $3000. Perhaps I should retire. It is costing me to work. :)
HailMary
Very well stated Elmer. The key is the put writer is working with the market trend, not against it, which is one reason I'm not big on covered calls...
HailMary
requires you to be "smarter" than the market
I don't agree with you here. You don't have to be smarter in terms of what a stock will do, but you do have to be smart about the strategy and risks. Writing puts is perfect for someone with a nest egg they want to preserve. If you stick to a few simple rules, you can easily make over 10% a year. The keys are
1. write puts on a few different stocks you can follow closely that you would not mind owning
2. write puts that are well out of the money (below the current price of the stock)
3. write puts monthly that expire the next month
4. set a loss limit - I usually set this around 100% of the proceeds. For instance if I write a put for $.75 and it goes to $1.50, I'll buy it back, and reevaluate the underlying stock the next month for more put writing.
It takes some experience and willpower to do this, so I can't say it is for everyone. I find you can safely make around 2.5% of the money risked per month, and about 3 out the 12 months you'll have to buy back for a loss 100% (rule 4 above) or be assigned the shares. This works out to (2.5*12)-(3*2.5*2) = 15% per year. Some years are better (no buy backs are necessary), some are worse (more buy backs). Overall it is a more steady return than just buying stocks. I don't strictly follow the rules above, because often times I want to be assigned the stock for a long term hold, and obviously I'm risking some of the proceeds on speculation.
I'm also not big on covered calls. Often when it is time to sell, it is really time to sell for a reason. You don't want to chase a stock downwards trying to sell it. In your example the option writers should have allowed the shares to be called away, or at the very least set a loss limit like I suggested above. They would have still made money on their shares. There will always be opportunities to buy shares again.
This isn't arrogance. You can do better than average if you have the time and the will. Most people don't want to bother with the complexity, so they're happy with a lower return. I'm not one of those. I like to be involved in the process, and I get a better return for doing so.
HailMary
I'm not trying to build a fortune
I'm not trying to build a fortune either, but sometimes it is worth buying the long call. When I retire (I like working for now), I'll probably quit doing this, as I could use the put writing proceeds as income instead of gambling so to speak. For now the call buying is a bit of a game for me. I wouldn't consider it a valuable investment strategy except in limited cases, but it does make for some fun. I'm up over 3x on Jan 15 calls I purchased from some put writing proceeds. I'm not bragging here. I could just as easily be out all that money. I'm just pointing out sometimes it is worth a long shot, but most of the time it isn't. If I'm 75% confident the stock will go up in the short term, I will often play the long shot, otherwise I'll keep the proceeds. Another much safer option is to just buy some stock with the proceeds. I do also like to build some cash reserves for the inevitable assignment that happens every once in a while. I would say 1/2 the time I leave the proceeds in cash, and the other half I invest in another stock or some long calls. If my cash depletes significantly, I'll switch to 100% keep the proceeds until it is replenished to the level I like to keep it at.
HailMary
I'm the house
The beautiful thing is you can play the house and the gambler at the same time if you so desire!!! The house in me has paid nicely. The gambler has paid nicely too (you have to pick your bets I say), but I'm sure over a 30 year period the house is going to do a much better job than the gambler in me. I never gamble more than the house has paid, so I'll always come out ahead of where I had been if I did nothing.
HailMary
Buying options on average might return 0%, but I can tell you writing options is a gold mine waiting for you to take part. More than 95% of options expire worthless, which means you get to keep the proceeds you got from the write without being assigned any shares most of the time. Also look into writing puts as a way to purchase stock. You're essentially giving yourself a discount. You can also use this method to dollar cost average your purchases. Just write puts monthly on a stock you would like to accumulate. Some months you'll get assigned, other months you won't and you keep the proceeds, either way you are getting the stock at a good discount.
Here is one example. Say you are going to buy a stock today for $11. Instead of doing that, write an in-the-money put on it (perhaps the next months $12 put - you'll probably get about $1.75 for them making the price to buy the stock around $10.25). You'll virtually be guaranteed the assignment, and you'll get to keep between $.50-$1.00 extra per share. You could then take that extra $.50-$1.00 you received in cash, and throw it into a risky out of the money call purchase. You have just purchased shares for the same amount you otherwise would have, and now you have a long shot gamble that may even pay off in spades. I use this one all the time. There are 2 risks here. If the stock goes up, you won't get assigned the shares, but the calls you purchaesed will probably pay off nicely, so you still 'win'. 2nd, if the stock goes down and you would have wanted to sell the shares had you done an outright purchase, you will have to buy back the put for a greater loss than you would have had just buying the stock. If you wait it out and get assigned, there would be no difference in potential loss. Basically you have to wait out the time value of the option you wrote.
If you combine put/call writing with stock purchases, you can easily do better than average. You can even use this strategy as a source of income after you make your fortune and want to keep it.
HailMary
I believe options are no more than legalized gambling.
You can make a complex option strategy that matches just about any way you feel about a situation the stock is in. Options offer so many different possibilities of how to play a stock. Just buying out of the money calls and puts is pretty much gambling, but there is so much more you can do with options than straight trades like that. In many cases you can reduce your exposure to a stock using options. You might want to read up on some of the more complex trades you can do. You are greatly limiting your investing choices if you don't use them.
HailMary
Even if I'm wrong - and I am often - I chalk it up as a learning experience
Nice to see a post like this. Sorry if I called you a pessimist in an earlier post. I have just been a long time lurker on SI, and I often disagreed with some of your conclusions. I have gotten something out of your posts though. Sometimes they make me consider things I would not have on my own. So keep posting...I especially like the posts on trading strategies.
HailMary
Too late now for them.
I feel like such a fool buying all those shares $20.02, $11.70, $6.25, $4.65, $6.95, and $8! OK - I was a fool buying in at $20.02! And I have to tell you there were many days I felt foolish holding on when the stock was around $3, but I believed AMD would make a good recovery in line with the next semiconductor upturn. So far, it looks like it is paying off. I think a good strategy is buy, buy, buy when there is lots of doom and gloom on the boards as long as you believe in a recovery, and sell, sell, sell when the biggest bears give in and go bullish. So the bears do serve some purpose here. :)
HailMary
That calls for a vote! Anyone else here see wbmw as a basher?
Basher - no. Pessimist - yes. I think just the other day wbmw was writing puts on the stock, so that speaks of how he really feels (somewhat bullish), regardless of lots of pessimistic posts that point to the contrary.
Nothing personal, but I think both of you have been off base on AMD and Intel predictions. I'm more in line with your thoughts about AMD stock doing very well though.
My prediction is Intel will have a small comeback once they get 90nm rolling next year, but AMD will have gained enough momentum to have good success with Opteron and A64. It is too early to declare a blind victory for either side here. I'll bail on my AMD investment at anytime if it looks like Intel has regained the upper hand. Don't get too wrapped up in the war and forget to take some profits.
HailMary
more than one partner
Thanks. Glad to hear that. I'm sure this is weighing on the stock. I myself am concerned, although the news so far looks like they are getting a great deal. I'll stick tight for now...
HailMary
So it looks to me like AMD is going to go in on this fab alone? If that is the case, I think this is good news long term, but short term this may be a cause of uncertainty. I think analysts and investors are going to see this as a risky move, even if it is the right one. I sure hope it doesn't test my $16 stop out. I guess if it does I'll get out and look for a new reentry point. Eagerly anticipating more details on thursday...
HailMary
HailMary, hat's off to a great strategy! :)
Don't congratulate me yet! I've learned never to celebrate until I have actually exited a position based on what I said I was going to do. I'll see if I have the discipline to sell everything if it takes a dive to 16. I'm hoping I don't have to test this. I would much rather test my upper end $25 exit point.
HailMary
It is not real clear to me whether or not the disk subsystems are necessarily equal here. Not all 15K scsi drives are created equal, and not all controllers perform the same either. They obviously cut some corners here to get the storage cost down. It would be nice if we could see a system from the same vendor with the exact same configuration except for the processor/MB combo. That would give us some real data for comparison. Too bad we'll probably never see this. Someone else pointed out the Opteron in that system is only an 844, which is now 2 models below AMD's top model 848. 2.8Ghz is still the top Xeon for a 4P configuration, right? I'm not trying to bash them. I know Intel has plans here to vastly improve its lineup with Prescott based servers. I do wonder how AMD is going to stack up in this area next year. I don't expect Intel to snooze forever.
HailMary
I just wrote a bunch of Dec 18 puts (for $1.40), which is aggressive for me as I usually go for the ones that are way out of the money. I'm now short Nov 14s, Dec 17s, and Dec 18s. I'll gladly keep any shares I am assigned. I'm keeping the proceeds as cash for now, but I'm eyeing April calls (I already have lots of Jan 15 calls). I consider myself fully loaded now. I was originally planning to sell around this timeframe (or at least stop writing puts), but I have become more bullish these last few weeks. I'll have to come up with some exit strategies now just in case things don't go my way. I'll probably just close all my AMD positions if the stock heads below $16, which would signal to me a change in momentum. I would take a loss on my latest transactions, but I would be well up overall on my previous stock assignments (average price around $9) and Jan 15 calls (average price around $.85).
HailMary