Replies to post #18167 on Advanced Micro Devices Inc (AMD)

[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

[dougSF30]

Alan,

That is a bogus argument, but the standard one that you see.

For every stock buyer, there is a seller, and vice versa.

But why consider the average of the whole universe of positions, if you plan on using a subset?

And again, since I could use only options to construct the equivalent of a stock position, the statement "all options = gambling" implies "stock = gambling".

As I said, adding option contracts to your arsenal allows the construction of positions which are LESS risky than owning stock outright, in addition to equally, or more, risky positions.

Finally, there's no difference between "gambling" and "investing" other than the connotation that the latter is a lower-risk/lower-reward bet, and the former is probably high-reward/high-risk. It's a big continuum.

Doug