Hi Fools
I’m pretty new to investing and after building a small portofolio with stocks and ETFs I would like to try also options.
What would be a recommended capital for starting with options? I’ve seen recommendations from 2k to 10k so I am a bit unsure.
I will add more over time but I would like to know what’s a minimum to get started ?
Start with covered call on existing position. Which requires no capital and of course you will have to give up your shares if the stock raises. Otherwise you are making some premium income.
As you get comfortable with that then we can talk about specific strategies.
On the capital, you may want to think how much % of age my investing assets I want to allocate for option trading, rather than a fixed amount.
Why $10K may be a reasonable amount for someone with $1 M assets, it is a a lot of capital for someone with $20K total assets.
My problem is that I dont have 100 shares for any stocks I own. I’ve already have a % in my calculation but I wasnt sure if that sum is enough for starting. As I was saying I would add over time but needed somewhat of a estimate.
Your strategy sounds good and I think I’ll get some positions to 100 and start with those.
Thank you for replying Kingran
Sure good luck. As you sell covered call, even if it is painful, start noting the values for delta, gamma, theta for every day. I would note them in an excel sheet like
Date, stock price delta, gamma, theta, …
Why? first by checking everyday you will see how the stock price, implied volatility, time all have an impact on the option premium.
Even if you do this for 2 months, you will develop a deeper understanding of how these 3 influence the option premium. You can read but nothing like plotting it for a month to develop a better feel.
Once you get how these 3 behave, the rest is simply math.
Selling covered calls is a nice place to start. The underlying asset for options is 100 shares of stock. So instead of thinking about how much $$ you need to sell a covered call, think about how many shares you need. You need to own 100 shares to “cover” the call. By owning 100 shares, that means you can deliver if the option expires in the money so the shares are called away from you at the strike price. Of course, the shares have a money value. Say the shares are worth $100 per share and you own 100 shares. So if instead of number of shares you want to think in terms of capital, that is $10,000. Or if you don’t own shares yet, you need $10,000 to buy 100 shares of the $100 stock to cover the call. One caveat to the 100 shares rule is that mini options exist for Apple (AAPL), Amazon (AMZN), SPDR Gold Trust (GLD), Google (GOOG), and SPDR S&P 500 ETF (SPY). If selling a put instead of selling a call, you need enough cash to buy 100 shares of the stock at the strike price. So if the strike price is $90, you need $9,000 to secure the put in case the option expires in the money and the shares are put on you.