OPTIONS: Long Post here : I tried my first option in a year yesterday by buying 10 of the SDS (Ultrashort the SPX ETF) $30 Call for a premium of $.12. I had posted a few times that I was leery of the market and was watching the SPX for clues. That's when I entered.
So in English for those that don't know...
Each option you buy is 100 shares. So 10 x 100 = 1,000 shares of SDS x $.12 = $120 cost to me ($12 or so for fees). So about $132 cost to me for the trade.
At this exact moment, the SDS call is
.23 bid x .24 ask
.23 x 10 calls x 100 = $230
So Ned Jr. is up about 80-90% on the $120 plus fees option.
Going forward I will be using options a lot as hedges. When the market is teetering on total happiness, I'll buy the opposite. If the stocks I'm holding go down, then this hedge will help to offset those losses.
The most that I can lose on this trade is the $120 + fees. It's capped. The most that I can make is unlimited. It does have an expiration date, which is Saturday, but in actuality its Friday afternoon close. I chose Friday's expiration. I could have chosen next Friday's but then the premium was too expensive for my puny trade.
So by Friday afternoon's close, this trade is expecting the SDS to be at $30. Right now its...$29.12. When I bought it yesterday it was $28.40 or so. I bought according to my 15 min chart.
I can sell the option at any time. Right now I could lock in the $100 and be on my way. Since it's such a puny amount, I'll probably let it roll and see if the market dips into the close and then dips on tomorrow's open. If that happens, I may get $200-$400 out of it.
I only had $150 or so available cash in the Ned JR. account. But going forward you can see that instead of buying 10 options, I could buy 30 or 50. So a $300 or $500 option buy for the $SPX or NASDAQ to go the other way, might be a good amount to *waste* each month as insurance. If my stocks all go up, then $300 or $500 won't mean much. If they all go down, then that $300 helps to heal the losses.
Let me know if anyone would like me to post info like this about options or not. I've done enough to know the basics, but like always, I have my own way of doing them and its not always like what most do. I have a LOT to learn about them.
word. (I'm not going back to re-read and edit - so is what it is :)
These thoughts are just mine, not right, not wrong, just thoughts. Invest in what you believe in, not what I believe in. Do your research, and invest in the facts.
