My top-3 option strategies
Although I’ll turn gray 👵🏼 by the time Moomoo developers integrate option strategies, I feel obligated to my 1.2k followers to share something they can actually make money off, thus I’ll write about it anyway.
As you all know, the options decay every day. Therefore buying an option might be not the best strategy, as, unless the price of the underlying stock moves in the desired direction quickly and/or significantly, you will end up loosing money.
As you all know, the options decay every day. Therefore buying an option might be not the best strategy, as, unless the price of the underlying stock moves in the desired direction quickly and/or significantly, you will end up loosing money.
I’m here to make money, thus I sell options instead.
I’m gonna share three scenarios, each one accompanied by my favorite strategy.
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Scenario #1: Currently holding the stock till it reaches my target price.
Strategy for #1: Selling covered calls
Sell weekly/monthly call options with the strike price = my target price.
Weekly calls are better as they decay faster and you will make more money selling them (think of renting your apartment weekly vs monthly: weekly is more profitable), but not all stocks have weekly options available
Scenario #1: Currently holding the stock till it reaches my target price.
Strategy for #1: Selling covered calls
Sell weekly/monthly call options with the strike price = my target price.
Weekly calls are better as they decay faster and you will make more money selling them (think of renting your apartment weekly vs monthly: weekly is more profitable), but not all stocks have weekly options available
Example for #1: holding 100 shares of AAPL that I plan to sell for $155 (current price is $154). I will sell 155 call expiring this week and collect $127 premium. That’s my profit. If AAPL doesn’t reach $155 this week, the call I sold will expire worthless and I’ll sell $155 call next week again. If the call is in the money I will have to give my shares out but, well - I planned to sell them for $155 anyway. Win-win.
Scenario #2. I don’t have shares of a company, but would like to buy them once the stock drops to my desired price.
Strategy for #2. Selling cash secured puts
Sell weekly/monthly (weeklies are better) put options for the strike price = my desired price.
Example for #2. I would like to buy 100 shares of AAPL once the price drops to $150 (currently $154). I will sell $150 puts expiring this Friday collecting $43 premium. That’s my profit. If the price doesn’t drop to $150, the puts I sold will expire worthless and I will sell the puts next week again. If the price does drop to/below $150 I will have to buy AAPL for $150, but that’s what I was planning to do anyway. Win-win.
It’s Warren Buffet’s favorite strategy, by the way
Scenario #3. I don’t hold or planning on buying a stock, but I have a strong feeling (based on technical analysis) that the price will go up
Strategy for scenario #3: selling put spreads
Since I’m not planning to own a stock; in order to protect the down side, additionally to selling a put I will have to buy a put for a strike one or few points below, limiting my risk to the difference between two legs
Example for #3. I don’t think the AAPL price will drop below $150 short term. I will sell $150 put expiring this Friday and buy $145 put expiring same Friday. Total premium collected is $27. Now my risks are limited to ($150-$145)*100-$27 (premium I collected).
I also have a stop loss for options to sell them once they lose 50% of value (got that after Adam Khoo), thus my risk is (($150-$145)*100)/2-$27 (premium I collected)
Trade from last week: on Moday 8/30 sold to open 280/275 PYPL credit put spread for $65, that expired wortless on Friday 9/3:
All illustrations are from my all time favorite Options Playbook https://amzn.to/3tmbQbe
P.S. Options are high risk high reward instruments not to be traded without basic knowledge. Stocks are more forgiving.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Kenneth-CJ : Thank you for sharing, "win-win" has appeared many times in your sharing, hope we can all do it!
finance_analystOP Kenneth-CJ: Thank you. I hope others can benefit from it too
Pauletta Kelly : thank you I'm so happy to be able to apart of this great opportunity.
finance_analystOP Pauletta Kelly: Thank you! Likewise!
Mike Hunt : Good stuff. Question about what the advantage is of a synthetic short stock options strategy of selling a call option and buying the same number of put options at the same strike price with both options in the same expiration cycle. What’s the advantage to doing that instead of just shorting 100 shares of the stock the normal way?
finance_analystOP Mike Hunt: Capital used. 1 AAPL put (1 month out) is $465, 100 shares is $14,300
Mike Hunt finance_analystOP: Duh. Thank you for pointing out the obvious that I was missing
finance_analystOP Mike Hunt: No problem. Your example doesn’t make much sense to me thought as the upside is unprotected. Once the stock price goes up, your put becomes worthless, but you are still obligated to provide 100 shares of the underlying stock (by buying them from the market at the increases price).
Let’s use same AAPL example. So you buy $143 put (-$465) and sell $143 call (+$453).
One month later AAPL is at $150, your put is worthless and your loss is ($150-$143)*100+12=712
Brokerage shouldn’t let you place this transaction unless you have underlining shares as there can’t be cash collateral for unlimited risk
Mike Hunt finance_analystOP: This is not a trade I would do. It’s one I’ve seen that is obviously institutional where the total of the 2 transactions is like 28 mil
Mike Hunt : I’m referring to lower on the page transaction
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