Another View of Options
The discussion about options trading seems to have ignored another way to use options. I have been playing the options market for many years and have yet to lose money. I buy a stock and wait for it to increase in price buy a reasonable amount. Then I write covered calls on the stock at a strike price that carries an attractive option premium. I get paid the option premium, which is simply pure profit, minus the brokerage fee. If the price of the stock is at or above the strike price when the option expires I have to sell the stock at the strike price. This strategy makes money, but definitely limits your upside potential for a profit.
For those who don't understand the concept, here's an example. You buy 10,000 shares of Placer Dome at $17.14 today for $171400. You then write 100 April 18 calls at $1.20 to get $12000. Your net cost is $159400 for owning 10000 shares of Placer Dome. If the price for Placer Dome is $18 or higher on April 18, you will be forced to sell the stock and will receive $180000. Your net profit is $20600. Of course you will have to take the broker's commission into consideration, so you won't make all of the $20600. Your return on investment for 10.5 weeks is 12.9%.
I also sell puts to make money. The key to this is knowing that you want to own the stock anyway and are willing to pay the strike price for it.
The discussion about options trading seems to have ignored another way to use options. I have been playing the options market for many years and have yet to lose money. I buy a stock and wait for it to increase in price buy a reasonable amount. Then I write covered calls on the stock at a strike price that carries an attractive option premium. I get paid the option premium, which is simply pure profit, minus the brokerage fee. If the price of the stock is at or above the strike price when the option expires I have to sell the stock at the strike price. This strategy makes money, but definitely limits your upside potential for a profit.
For those who don't understand the concept, here's an example. You buy 10,000 shares of Placer Dome at $17.14 today for $171400. You then write 100 April 18 calls at $1.20 to get $12000. Your net cost is $159400 for owning 10000 shares of Placer Dome. If the price for Placer Dome is $18 or higher on April 18, you will be forced to sell the stock and will receive $180000. Your net profit is $20600. Of course you will have to take the broker's commission into consideration, so you won't make all of the $20600. Your return on investment for 10.5 weeks is 12.9%.
I also sell puts to make money. The key to this is knowing that you want to own the stock anyway and are willing to pay the strike price for it.
