- Joined
- Oct 2, 2017
- Messages
- 8,620
1. You can choose any exp date you prefer. I picked Oct for my example, I own plenty of longer term options. The farther they are out, the more valuable they are. There is time value and money value (price) and that's part of the strategy.
2. You are not forced to do ANYTHING until the expiration date. Of course the value of the option will change based on market value along the way. What can be interesting is when an option that you sold moves toward the strike price and becomes more valuable (which is bad for you since you are short) which shows up as if you are getting crushed in your account, but then the clock strikes midnight and it falls short and drops to zero. You should track some options that are near the strike prices as practice to learn more. Wild swings.
3. Yes, you will always buy at $102 (which means a real cost of $97.90 because you were already paid the premium). So if AAPL goes to $90 on the expiration date, you are buying at $102, $12 above market value. Which sucks, but you were going to buy it at $107! So it actually mitigates your loss.
4. (Why would you choose to buy before the expiration?). I don 't understand the question.
5. You didn't SPEND $4100 on the options, you were PAID $4100 to write the options! You sold them (short)! So if the price doesn't go below $102, the options that you SOLD for $4100 expire worthless, and you walk away with your $4100. That's sort of my game. Run these over and over and when they do drop, that's how I accumulate common shares as good prices. And along the way I am banking the premiums.
6. Yes, you will miss out on the stock if it doesn't go low enough to force you to buy. But you are banking premiums along the way that you can apply to the real cost when you do have one hit. In other words, lets say I bank $10 of premiums over three put sales, and then I finally buy AAPL at a good price... whatever price I paid, I have a true net cost of $10 less.
7. Stock goes up, I keep 100% of the premium and walk away. Stock goes down, and I buy a stock I really like at the strike price, MINUS the premium, which is a lot lower than the stock was priced at when I started this trade. It's win/win. How you can lose money is if you end up buying the common of a ****** stock that goes down forever, just like if you just went out and bought regular stock today. You want to do this with companies you like, and of course, there have to be what you think are well priced options there for your needs.
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