Today’s cockeyed rally doesn’t see the recession ahead. We aren’t even close to capitulation. Dream on … Radio Star
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There wont be a capitulation. We will just arrive at ground zero and moan for months.
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How to profit from a “Bull Trap?”
• Place a ridiculously high priced GTC covered call order
• Wait for the Bull Trap to trigger the order
• When the Bull Trap closes a few days later, buy back the call at half the price
The Captain
likes to see the bright side of things
• 11/09 - Placed a GTC ENPH $350, Dec 16 calls at $6.50
• 11/10 - Order executed
• 11/10 - Placed a GTC order to buy them back at $3.00
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@captainccs this is brilliant.
Please write a new post explaining your strategy and how you execute the specific trades in detail.
I read two books about options and covered calls but I found it confusing. I’d appreciate hearing more about how you turn this into profits.
Thanks,
Wendy
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There are many ways to play options most of which I also find rather confusing. The book that got me on the right track was Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg. Instead of just describing various types of trades it explains the basics of how options work and that lets one create one’s own strategies.
Alan Ellman’s Complete Encyclopedia for Covered Call Writing. Kindle Edition is an easier read and it deals just with covered calls, the least risky options trade.
To truly understand covered calls one needs to understand the mathematics of gambling casinos. The seller (me) is the house and the buyers are the gamblers. Each game has a vigorish, the odds in favor of the house. While the outcome of any one hand is close to random the law of large numbers practically guarantees that the house will win long term. It’s the same mathematics that underlies insurance. But the house needs some rules to keep the games safe, the most important being the limit on the size of the bets.
The seller gets to pick the game he wants to play. The buyer takes it or leaves it. The trick, then, is to make sure the odds are on your side. Natenberg’s book teaches you to create your own ‘games.’
I wrote a great many posts on covered calls at NPI. You can find them with this Google search:
site:boards.fool.com “New Paradigm Investing” covered calls
Ellman’s Complete Encyclopedia for Covered Call Writing does a good job explaining how to write covered calls. What I’m doing in addition is looking at the market and adapting the basics to the current circumstances. That takes some training in technical analysis, i.e. charting. I’ll outline the basics but the actual trades depend on the circumstances. A Bull Trap is one such case.
The Captain
BTW, The Kelly Criterion is the mathematics that keeps players from going broke:
https://www.google.com/search?client=safari&rls=en&q=The+Kelly+Criterion&ie=UTF-8&oe=UTF-8
John Larry Kelly Jr. was a scientist at Bell Labs
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The $6.50 call was too low – not aggressive enough, the stock went a lot higher before coming back down. Ten day chart:
It might close early Monday which is usually a low point
The Captain
Thank you! I will order these books.
Wendy
Deep in the money call LEAPS options (expiring 1/2025) have worked well for many on the Berkshire board as BRK’s earnings and history of bouncing back over time. Of course, they employ more leverage than simply buying the stock itself. Please do not ask me to explain beyond this as there are great books and videos, but it has been a reasonable way to add a bit of return with reasonable risk and using mild leverage.
Most recently I bought some a BRKB call option which expires in Jan. 2025 in September 2022 with a strike price of 150 for $13,800. I can sell the call or purchase 100 shares for $15,000 yet not until expiration. My bet is that BRKB will be substantially above my break even if $288 in 26 months. Just sharing my 2 cents on LEAPS that pass my taste test in moderation. Good luck!
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The irony of my handle…
The truth of owning, if you have better judgement in the equities market you make far more money just going long. Using options is not something you play with.
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