Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Jan 7, 2017 11:04:59 GMT -8
Would love to watch this but CNBC's website sucks. Is it just me ?? I can't get the video to play ... it shuffles through several and starts some other topic , when I actually click on the video I want it won't play ... it's done this to me a lot. Maybe it's my browser ?? ARGHHH CNBC's videos are inconsistent. I have many of the same issues you do. Not sure if it's the website, Safari or the fact that I use Ghostery and Adblock.
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Post by incorrigible on Jan 7, 2017 11:10:29 GMT -8
Selling puts on margin is very risky. If price continues to decline, losses pile up quickly. Sell puts only if you feel very bullish. I don't know about "very" bullish. It's not like buying calls. Shorting a put is similar to a covered call. I agree. The reason for this is that I have identified price points for stocks I want to own but are currently overvalued. Sell a put at the price I am willing to pay and pocket the premium. If the stock drops to the buy point that's fine. I want the stock anyway. If not I make a little money from the premium I kept . As long as it doesn't crater due to some unforeseen circumstance then I'm OK. My question on the margin was because I don't want to tie up large amounts of cash to secure the put. I can use my margin instead. which is fine as long as I don't have to pay margin interest which it appears that I won't have to do. I'll be trying a test case soon to insure that's the case.
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Post by mace on Jan 7, 2017 15:32:29 GMT -8
Selling puts on margin is very risky. If price continues to decline, losses pile up quickly. Sell puts only if you feel very bullish. .. Shorting a put is similar to a covered call. Shorting secured (by cash) puts is equivalent to shorting covered call. So is a conservative strategy. Shorting puts on margin is not equivalent to shorting covered call. Gain is limited, losses twice as fast and can get margin call.
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Post by Apple II+ on Jan 7, 2017 17:39:09 GMT -8
.. Shorting a put is similar to a covered call. Shorting secured (by cash) puts is equivalent to shorting covered call. So is a conservative strategy. Shorting puts on margin is not equivalent to shorting covered call. Gain is limited, losses twice as fast and can get margin call. A conservative strategy doesn't automatically become "very risky" because of margin. It is a matter of degree, dependent on how much margin. The more margin, the riskier it is. Also, the strike price is a significant consideration. Shorting a deep ITM put is much riskier than shorting a deem OTM put. Shorting a put on margin is similar to a covered call buy-write on margin. Both have limited gains, leveraged losses or gains, and can lead to margin calls.
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Post by mace on Jan 7, 2017 19:08:59 GMT -8
Nothing to add.
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mark
fire starter
Posts: 1,552
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Post by mark on Jan 7, 2017 21:32:24 GMT -8
I look at selling (shorting) naked puts as a "stock purchase replacement", or at least a future stock purchase. For example, I sold some Jan '19 80s for about 6 bucks. To me, that's equivalent to purchasing the stock at $74 sometime between now and Jan '19. Of course sometimes it doesn't work out and I don't get to buy the stock at $74 and instead just get to keep the 6 bucks (which by the way I've been able to use for the duration). Basically I will only sell (naked short) a put at a net price that I am willing to buy the stock at.
I remember reading that Apple, for the purposes of buyback, contracted with large Wall Street firms that did just this - sold a bunch of puts expecting them to be exercised and using that stock for the buyback.
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Post by mace on Jan 7, 2017 23:06:52 GMT -8
Shorting puts on margin = shorting naked puts, margin requirements depend on stocks, and volatility of stock and market at the time. Shorting cash secured puts means you have the cash in the account to buy the stock when necessary.
Typical option approval levels (level 1 is less risky, level 4 is most risky): Level 1: Sell covered calls Level 2: Sell cash secured puts Level 4: Sell naked puts
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Post by Apple II+ on Jan 8, 2017 10:10:09 GMT -8
Selling naked calls is even riskier, since there is no hard limit on how high a stock can go. With naked puts the max loss is finite, since a stock can at worst go to 0.
The real risk we're talking about is the use of margin. It's risky, no two ways about it.
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Post by incorrigible on Jan 8, 2017 11:45:34 GMT -8
Thanks for all the feedback folks.
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