3 ms·
> In the typical case, you can continue to collect those pennies. Top notch comment, considering options trading is often described as "picking up pennies in f
by owenmarshall 3y ago
> In the typical case, you can continue to collect those pennies.
Top notch comment, considering options trading is often described as "picking up pennies in front of a steamroller."
> Loss aversion and all that, but it feels like a reasonable strategy where you still come out ahead in the worst case
You don't come out ahead in the worst case – the option you wrote can settle deep ITM and you are compelled to sell a stock at a loss. Worst case you could lose a major chunk of change.
- OkayPhysicist 3y ago> You don't come out ahead in the worst case But you were offering it based on the market price when you offered it. The "loss" is merely one of opportunity, you're not actually losing any value you had when you sold the option, right?
- lsaferite 3y agoIf you sold the option and don't hold the stock then you are exposed to essentially uncapped losses.
- deleted 3y ago[deleted]
- 0cf8612b2e1e 3y agoListed scenario started by saying you own SPLK.
- lsaferite 3y agoCorrect, but this sub-section of the thread veered off into the naked options territory and I was simply trying to clear up the confusion of the person I was replying to.
- 0cf8612b2e1e 3y agoClearly I am not an option trader, but so long as you own the option you are selling (covered) doesn’t that make your maximum loss the stock itself (+potential profit from the positive movement). I thought ruin can only happen if you are selling naked?
- mhink 3y agoSuppose I buy 100 shares of $ABC for $10 (total cost for me is $1000) and then sell a call option for $1 with a strike price of (say) $50. The absolute worst case scenario is that the value of my *shares* goes to $0, in which case I've lost $999. On the other hand, if the price shoots up to, say, $85, I'm still obligated to sell them at $50. Since I bought them at $10, I've still made $4001 profit, but I'm still dissatisfied because I would have made $7500 if I hadn't sold the call option. What you're describing is what happens if I don't already own those shares and the price skyrockets. If the counterparty exercises their $50 option when the current price is $85, then yes, I'm obligated to buy the shares at market price and sell for a total loss of ($STRIKE_PRICE * 100) - $5000 - 1.
- deleted 3y ago[deleted]