Talking Stocks 2.0

[asloper6001]

Originally Posted by dmash

When the people who’ve never invested a penny start finally ‘taking the plunge’ it’s when the big boys get ready to start cashing in.

This is crypto 2017 all over again.

CNBC stated there was like 10 million new retail accounts created in the last 3-4 months I believe.

I always liked the "when your uber driver gives you stock picks" one lol.

[AshCashEmAll]

If and when these meme stocks come back down to planet earth how will the impact the market as a whole? I’m contemplating whether things will go back to business as usual.


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[Duey]

Good little read here - https://www.cnet.com/personal-financ...erry-are-next/

This is true insanity - When anybody and everybody is marking money in the market it's time to get out.

[austinp]

Originally Posted by sokoloka

Sign of the times and a signal of the peak for me. Every rando I know has started hitting me up about STONKS and that's when it's time to get cash ready to deploy.

Agree with this. Get some cash ready!


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[asloper6001]

Just updating here. WSB discord channel server has been taken offline. The WSB reddit channel has went into private mode lock down. Only mods can enter.

Now lets look into the hedge fund channels.

[owl.]

Originally Posted by austinp

Agree with this. Get some cash ready!


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When you say “cash” do you literally mean cash?

Or just money in the bank that is liquid?

Sorry, newbie here

[logo]

Dave Portnoy, barstool sports founder and retail investor has posted he has $1M in AMC and NOK. https://twitter.com/stoolpresidente/...397601798?s=21

He has a large following. This is all getting so crazy.

[EEpro]

Originally Posted by owl.

When you say “cash” do you literally mean cash?

Or just money in the bank that is liquid?

Sorry, newbie here

Cash in the brokerage. Dry powder to deploy.

[7sins]

Thought this was interesting, if this is true, this could cause a serious short term problem for the market and possibly a very unique buying opportunity. Lets think this through, if GME keeps rising, these massive hedge funds will need to sell most of their liquid stock positions to cover margin calls as to not completely collapse. If they become forced sellers, that forced liquidation will cause a selloff across most widely held stocks by hedge funds. We will see how this plays out but I foresee some excellent buying opportunities in the near term. Certainly this is dictated by which hedge funds are underwater and what other underlying securities they own since not all HF's are short gme. Quick search shows the 25 stocks below are most actively held by hedge funds. Would love to add to my PYPL position below $200 and V at $180 again.

25 Most Popular Hedge Fund Stocks
Rank Name of the Company Ticker Change
from Last Quarter
1. Amazon.com, Inc. AMZN ↗
2. Apple, Inc. AAPL ↙
3. Facebook, Inc. FB ↗
4. Microsoft Corp. MSFT ↙
5. Alphabet, Inc. GOOG ↗
6. Visa, Inc. V ↙
7. Adobe Systems, Inc. ADBE ↗
8. Danaher Corp. DHR ↗
9. salesforce.com, Inc. CRM ↙
10. UnitedHealth Group, Inc. UNH ↗
11. Mastercard, Inc. MA ↙
12. NVIDIA Corp. NVDA ↙
13. Netflix, Inc. NFLX ---
14. Bank of America Corp. BAC ---
15. PayPal Holdings, Inc. PYPL ---
16. Tesla, Inc. TSLA ↙
17. Comcast Corp. CMCSA ↙
18. Cigna Corp. CI ---
19. General Electric Co. GE ---
20. ServiceNow, Inc. NOW ---
21. Global Payments, Inc. GPN ---
22. Berkshire Hathaway, Inc. BRK-A ↗
23. Intuitive Surgical, Inc. ISRG ---
24. The Walt Disney Co. DIS ---
25. Baker Hughes Co. BKR ---

[chsu74]

Originally Posted by 7sins

Options Training Part 2 with 7Sins: HOW TO GENERATE EASY CASH FLOW WITH YOUR STOCKS VIA COVERED CALLS


I know a lot of you have been asking for this on Covered Call strategies and it took me a bit longer to write but hopefully all of you find it helpful.

Hopefully everyone enjoyed reading my Options Training Part 1, understanding the basics (located here: https://www.rolexforums.com/showpost...postcount=6217), this will be imperative to understanding all of my future posts on options as it sets the foundation to effectively using options. Please note I write all of this as I genuinely enjoy educating and helping people, my goal is for all of us to make more money and control risk while doing it - please note I am not responsible nor liable for what you do with option trading.

What is a covered call?: A covered call is an option strategy that allows you to generate very low risk (essentially free) income on your existing stock positions. This means you currently own the underlying stock and you would write (sell to open) a call which then IMMEDIATELY adds income to your account. Note this is very different from buying a call as previously discussed. We will cover writing naked calls and puts in a different post, for now, stay away from writing naked calls as these are very risky and have unlimited max loss. This is also an excellent tool to use as an exit strategy, GET PAID TO SELL YOUR STOCK or reduce the cost basis of your existing stock.

IMPORTANT We write covered calls on stocks that we believe will have limited upside movement or will trade sideways, want to get paid to sell a position we were planning to sell anyways and or stock we are okay with it being "called away" (more on that later). This means the stock you own can be assigned and you have the potential of early assignment. There are ways to hedge against your stock being called away from you, we will discuss later too and how you can use the income from your covered calls to generate more total return. Lots to cover and a real life example will put all of it together!

The easiest way to learn is through a real life example, so lets work our way through one and the possible outcomes.

Lets use CRSR as an example as I have seen discussed several times on here. In our example, you own 10,000 shares of CRSR for a current value of $384,300 (sp today is $38) - note I do not own CRSR, this is for example only. Now you want to use your existing CRSR stock to generate income. Remember from part 1, 100 shares = 1 option contract.If you own 10,000 shares that means you can write up to 100 option contracts (100 contracts = 10,000 shares). You do NOT have to write the same number of contracts as shares you own, so you can write less than 100 contracts in this example. You should NOT write more contracts than shares you own.

EXPIRATION: The longer the expiration the more premium you will collect, this should be intuitive as this is the longer the buyer of your option has for the price to hit the strike - this will make more sense in the example. IE a march $35 strike is 1 month from expiration, not much time for stock to appreciate to the strike you selected compared to a dec $35 which is a much longer expiration and thus more time for the stock to hit your strike at expiration, the latter will allow you to collect more premium.

STRIKE PRICE: This is important, the higher the strike price you select, the less income you will generate as the less likelihood the stock price hits the strike price by expiration. When I pick a strike price, I look at 50 day and 200 day moving averages to see resistance in the stock price (also depends on conviction and expiration), then I pick a strike price slightly higher as there should be resistance at those levels. We will discuss how to pick strike prices via delta in black scholes modeling in a later post. You will also want to look at level 2 data so you can see what bids are at each price level for the stock. IE if the stock is trading at $30 and there are massive buy orders at $31 and $32, that means it will have significant resistance to breakthrough $32, thus a strike at $35 could be very profitable. We will also discuss this in a later post.

Lets use a short expiration and a long expiration in our example. The first is the option chain below for CRSR March 19th which is about 7 weeks to expiration. Notice the farther out of the money aka the higher the strike price, the lower the price of the call aka the lower the premium you receive.

Now, lets say you selected the $45 strike, you can see the last price was $4.50. Remember you are not buying call options, you are WRITING THEM (sell to open), that means someone is purchasing them from you thus they have to pay you the $4.50 per contract. Ideally you want to pick a strike price you would be comfortable selling your stock at. Generally you will hold these to expiration or until stock is called away from you.



EXAMPLE 1 COVERED CALL $45 STRIKE 3/19/21 You write the call (aka sell to open) at $45 strike with a price of $4.50. YOU ARE INSTANTLY CREDITED $45,000 of premium into your account. That is ALWAYS yours to keep regardless of what happens to the stock price. Ideally you want the stock price to stay below the strike price so your stock isn't called away - caveats mentioned later.

Scenario 1 of EX1 CRSR never reaches $45:There are 7 weeks until your $45 strike option expires. As soon as you write the option you were immediately credited with $45k into your account. In this scenario, CRSR bounces around but never hits $45 by expiration, thus it is not profitable for the buyer of your option to exercise the option at $45. This means that his option expires worthless, you keep your $45k premium and your CRSR stock.

What's the risk? Your option is collateralized by your stock, thus if the stock price on CRSR falls to $30, your 100k shares is now only worth 300k (this would have happened if you wrote the call or not) BUT now you have 45k in premium, so your loss is much lower if you just held the stock. You could have completely sold the stock but that would have required knowing it would fall to $30, so the covered call at least provides a nice cushion here.

Scenario 2 of EX2 CRSR trades above $45: Just like in Scenario 1, as soon as you write the 100 contracts you are immediately credited $45k in premium into your account. CRSR rallies to $50, the buyer of your option will likely execute the option and you will be forced to sell your shares (this creates a taxable event) at $45 strike/stock price (so you can see you missed out on $5 upside). This means you made the $45k premium from the option and the stock price went from $38 to $50 but you were forced to sell your shares at the strike of $45 and thus you made $7/share ($45-38 stock price now) which would be 70k. So in this example you made 45k premium plus 70k the difference between the price today and what the strike you are forced to sell at would be $115k total profit. Not bad!

What is the risk EX 2? The risk here is that the CRSR skyrockets and you would have missed out on all of that potential upside but we can hedge against that by...

VERY IMPORTANT HOW TO HEDGE AND PROFIT IF STOCK RISES: Lets say in EX 2 you want to write the covered call BUT you are worried the stock might continue to rise past the strike. You can take a part of the premium you collected in this option from writing a call and buy a call (buy to open). So in this example, lets say you took $20k of your $45k premium you collected when writing the call to buy a call on CRSR so you don't miss out if the stock sky rockets. I typically like to buy the call more OTM than the strike I wrote the call at, so in this example lets just say I bought the call for a $50 strike which is 3.36 last price. If the stock price goes on a run to $60, that call option would appreciate from $20k to 57.1k. Thus you made money collecting the premium from writing the call and did not miss out on CRSR running past the strike and your stock being called away. Another trick here that I use is I will take the premium from writing covered calls and buy longer dated leaps to hedge if the stock goes up in the long run. We can create artificial leverage for more call upside when we write puts but that will be a later post.

Lets look at another example of CRSR with a much longer expiration, Dec 17 2021, 9 months to expiration. The same $45 strike here pays $10.88. That means you would get a premium of $108k credited into your account immediately on writing 100 contracts. The difference here is the buyer who purchased this option from you has until Dec 17th for CRSR to hit the $45 strike. USUALLY the assignment of the stock being called away from you comes at expiration, however the stock can be called away prior to expiration). Nothing changes from what I mentioned in the two above examples, only difference here is you are getting more premium but your stock is being locked up for a longer period of time aka more time the stock could go down (you could close prior to expiration which I will cover later).


THINGS TO CONSIDER:

IMPLIED VOLATILITY: The higher the IV the more premium you are going to collect. Remember that higher the IV means the higher the implied volatility (stock moves in price more) which means more likelihood your stock gets called away. If you were planning on selling your stock, why not get PAID to sell it assuming the price doesn't crash (again we want to focus on stocks we don't expect much movement in)? The opposite holds true, if IV is low, you are going to get paid less to write the calls against your stock but less likelihood your stock gets called away.

OTM/ITM: The further out of the money strike you select, the less premium you are paid but also the less likely your stock gets called away. The farther in the money strike you pick, the more you get paid and the more likely your stock will get called away.

SELL BEFORE EXPIRATION: This is called a close out, you can buy back the covered calls, at a gain or loss and still retain your stock. You can do this to lock in early gains quickly, assuming the price drops, especially on short dated options as theta/time decay will kick in hard. Lets say you write a 30 day call, stock price goes down a week later, you can close out that call and lock in a good portion of your premium while not having to give up your stock.

IMT COVERED CALL When you sell a call ITM, you will not profit from the stock rising in price because it is already in the money, but you will collect more of a premium since it is more in the money and offers better downside protection. I typically use these when I am looking to sell a position and get paid to sell it, the risk here is if the stock crashes below the strike, I still get my premium but still own the stock which is now at a loss. You of course can buy an OTM put to hedge against this.

Dividends IMPORTANT: Make sure you take into account dividends before writing a call and selecting an expiration. Dividend payments prior to expiration will change the value of the option. Why? Because the stock price will drop by the amount of the dividend on the ex-div date. This is also a reason why call buyers exercise early. Most people overlook this.

This is covering a lot, please feel free to ask any questions and I can walk through more examples and add more clarity. More posts to come if people continue to find these helpful as they are quite time intensive. Cheers.

Thanks for taking the time to write and share your knowledge. Will you be sharing thoughts on option straddles as well?

I typically will sell high IV ITM straddles(selling both calls and puts at the same time) if conviction in a position is strong. Price of a stock can only go up or down and you get to collect premium as extra profit if price moves up or additional hedge when price goes down and you get put the stock. Your account need to have enough cash to cover the puts sold in an IRA account or have margin.

I will also sell a higher strike price call if the premiums collected justifies my belief in the stock.

[owl.]

Originally Posted by EEpro

Cash in the brokerage. Dry powder to deploy.

Oh okay; thanks!

[yoast]

Originally Posted by 7sins

Options Training Part 2 with 7Sins: HOW TO GENERATE EASY CASH FLOW WITH YOUR STOCKS VIA COVERED CALLS

Extremely helpful and thanks for sharing this.

[7sins]

Originally Posted by chsu74

Thanks for taking the time to write and share your knowledge. Will you be sharing thoughts on option straddles as well?

I typically will sell high IV ITM straddles(selling both calls and puts at the same time) if conviction in a position is strong. Price of a stock can only go up or down and you get to collect premium as extra profit if price moves up or additional hedge when price goes down and you get put the stock. Your account need to have enough cash to cover the puts sold in an IRA account or have margin.

I will also sell a higher strike price call if the premiums collected justifies my belief in the stock.

You are very welcome! Absolutely, I will cover option straddles in a later post, my personal preference are calendar spreads as I like to change expirations on the call and put side. These are fairly complex strategies, I will work our way there. Last thing I want to do is confuse anyone so my intent is to go nice and slow for people to really grasp options. Next post will be how to write puts on stocks to lower cost on an entry and or generate income on idle cash.

Originally Posted by yoast

Extremely helpful and thanks for sharing this.

You are welcome, happy to help and share strategies we can all benefit from!

[chsu74]

Originally Posted by logo

I previously owned it, sold it around 200 for a small profit. Also had OTRK. Sold around the time that the AMZN news came out about entering into healthcare. Kicking myself a bit now, but parlayed that cash into BB and GEVO when they were very cheap, so ultimately I'm still ahead of where I would have been. Overall I think telehealth is still going to be important, but ultimately I did not have the conviction to say that TDOC, OTRK, AMWL etc were going to be the big player, especially with AMZN entering and GOOGL not far off.

Personally, if I were looking to get into the telehealth space I'd wait till it pulls back a bit to enter.

I came across CVLB few weeks back and did not pay attention to it. It jumped yesterday but still trading at 8X sales with low float and high insider ownership. Comparing to OTRK which is at 24X sales or TDOC at 46X

https://finance.yahoo.com/news/conve...133100395.html

[chsu74]

Originally Posted by ratlover

BB has been on a tear recently.

I sold all my open longs todays at 100% profit in 10 days. Left my straddles to see where it goes.

[chsu74]

I like Tom Lee and one of the guys I respect. His comment of 3 trillion dollars from the bond market flowing into the equity market is interesting to hear.

https://youtu.be/WMh6eCvmpnw

[Duey]

7sins - Thanks for the "hedge funds will need to sell most of their liquid stock positions "

This is going to be a very interesting next few weeks. I'm sure we will see some excellent opportunities

[Fleetlord]

This was bound to happen sooner or later since the general public has free and ridiculously easy access to trade STONKS, some of whom have loads of freshly minted internet cash to use on whatever...might as well be STONKS. Very simple to be cheeky and try to derail an institution to prove something, especially when there are factions who don’t have any respect for it.

[eanzenberg]

💎🙌

[BBL]

.
Is there anyone on this thread trading on Robinhood?

Thanks,
DM

[bimmer nerd]

Originally Posted by BBL

.
Is there anyone on this thread trading on Robinhood?

Thanks,
DM

I use TD Ameritrade, Vanguard and Robinhood. How can I help?

[77T]

Some reckoning coming (i.e., moral hazard chatter) if Treasury comes into the current subreddit manipulation + bailout plans for illiquid hedge funds who overplayed shorting GME and others.

Clearly this could make the 2008 financial crisis look pale. I have no tears for the hedge managers as their quants and algo’s led them into over shorting the actual volume of issued shares.

But behind those hedge funds are large institutional managers who relied on them to balance their own positions. Guess who gets left losing the actual money? Pension funds, IRA/401k holders of the underlying funds who will now re-value their NAVs.

Those who bash Reddit for hosting the current cabal have forgotten the pump and dump strategies - now, "short and distort" replaces it. Behind this current effort could be funding by Crypto-fueled connected individuals who want to strike a blow against that form of securities fraud.

Lastly, I’m not so sure the façade is truly what we think it is. We may need to wait until it all unwinds. Maybe this isn’t a cohort of retail investors...

Not a conspiracy theorist myself but if state-sponsored fintech hacking ops wanted a strategy to mess with soft underbelly of open markets - this is the best way to do that.


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[JParm]

Will be interesting to see where the price action goes for FB today, which had a great Q4 (same goes for AAPL).

Does the Wall Street Bets action continue to affect it, or do we see a rise? Futures is relatively muted...

[m j b]

Originally Posted by jpeezy14@hotmail.com

Will be interesting to see where the price action goes for FB today, which had a great Q4 (same goes for AAPL).

Does the Wall Street Bets action continue to affect it, or do we see a rise? Futures is relatively muted...

I'm thinking that fb and aapl have too large a float to be manipulated like gme.

[JParm]

Originally Posted by m j b

I'm thinking that fb and aapl have too large a float to be manipulated like gme.

Yes, not so much the manipulation, but the fact that investment firms are most likely moving money around to cover shorts (e.g. taking money from long positions to get the cash).

Let's hope this ends soon.

[JParm]

https://www.cnbc.com/2021/01/28/walm...business-.html

Walmart partners with The Trade Desk for ads; should be huge for TTD. Long here.

[huncho]

robinhood stopped trading of gme/amc/bb/nok today, just says "stock is not supported on robinhood". talk about manipulation

[dmash]

Originally Posted by m j b

I'm thinking that fb and aapl have too large a float to be manipulated like gme.

Really? Do you see Nokia’s float

LOL

[enjoythemusic]

Originally Posted by huncho

robinhood stopped trading of gme/amc/bb/nok today, just says "stock is not supported on robinhood". talk about manipulation

Did you reeeeally expect any different. Look at the last time we shorted big time (2007/2008) and how the banksters played that... until they could no longer hold back the tide.

Keep buying GME AMC etc

STRONG hold and DO NOT let the brokerage lend it out.

[jaisonline]

Originally Posted by huncho

robinhood stopped trading of gme/amc/bb/nok today, just says "stock is not supported on robinhood". talk about manipulation

This is huge on so many accounts. The suits had a secret meeting and came up w/ this.

RH users with these shares prob feel like a 1980s boxer after a sparring session with Mike Tyson.