Replies to post #571 on Option Education

[Newly2b]

To increase your profits, you might consider selling OTM covered calls against your existing position. Just a thought. . .

Newly

[leemalone2k3]

I think thats a great way to buy stock at a discount. Since you are willing to pay 16.51, you are buying it cheaper.

[Newly2b]

BTW, the problem with your scenario of selling a Feb 17.50Put on a stock trading at 16.51 today is that there is no guarantee the option will be exercised before expiry.

Your risk is unlimited if the stock price falls, and limited to the prem received if it rises. IOW, if the price of the stock falls, the price of the option will rise and unless you buy it back, losing money on the trade, you may have the stock put to you at expiry at a price far above what you would pay for the stock outright in the market at that point. If the price of the stock rises, it may no longer be ITM at expiry, although you will still get to keep the premium you received for selling the Put, you just won't get the stock put to you.

One sells a Put or buys a Call when one expects a stock's price to rise. One sells a Call or buys a Put when one expects a stock's price to fall.

Newly

[Toofuzzy]

Hi bkluck

You may want to sell a slightly out of the money put instead. You will take in more TIME premium (though lower actual premium) and you will need just a little less margin in your account.

Lets say a stock is at 50 and you are willing to buy at 45 and you are also willing to buy even more at 40

Sell a 45 put six months or a year out.

If the stock drops to 45 before expiration, buy the stock, it may go back up before expiration and you would miss the opportunity.

If it stays down till expiration or drops further you would have bought more at 40 and hopefully you took in enough premium to bring the price down to that or close.

The above assumes you have enough funds for an additional purchase.

Toofuzzy