[quote=SK in CV][quote=flu]SK, forgot to ask earlier also. What kind of put spread are you doing on VZ and T?[/quote]
On T, I think I sold a put at $40 and bought a put at $35, and took in about $1 premium. Options are quoted as a single share but trade on a 100 share contract, so I took in about $100. (Actually 2, since I sold/bought 2 contracts) My max risk is the difference between the two or $500. If the stock falls below $40, it can be put to me, and I just ended up buying T for $39/sh. With its current dividend, I wouldn’t mind owning it at $39. VZ was similar, I think the strikes were $52/47 and I didn’t take in quite a buck. That was right at the open when vol was really high. If the bottom falls out, i’m out $500. If nothing happens, I keep my premium. If it falls a few bucks, i’m in at $51 and change.[/quote]
I get it…So basically, a bull put spread, i think…
*If stock doesn’t move or rises, both put options expire, and you keep $1/share.
*If the stock tanks, to say $45/sh, you’re limiting your damage, because you have to buy the stock at $52 (the put you sold), but you can sell at $47 (the put you bought)….So you’re limited damage is $400 ($4/share, after the $1/share premium you were already paid)
*If the stock ends up somewhere in the middle, say at $49… The $52 gets exercised and you buy the stock at $52/share, less $1 in option premium you were already paid.
I’ve read about some of these option strategies a long time ago, but didn’t know what they were for….
Dumb question. If one thinks the stock is going to rise, why not just buy the stock? What advantage does this put spread have over just buying? Excuse the dumb question…
The only option trading I’ve ever done was to either write covered calls or buy put options as a hedge against company issued stock options or RSUs that were unvested and/or nearly vesting…and that was back a long time ago, when companies didn’t have so many policies about owning derivatives as an employee…So I’m curious how people are using these other strategies.
