My First Options Trade

[workathome]

You can open margin with Schwab. I'd recommend having it in the same account vs. selling naked calls.

[altoid]

@WAH, thank you. I forgot to mention my schwab account was a employer sponsored SIMPLE IRA, wonder if that complicates things. Will make an inquiry to Schwab today.

And in the strageties of selling puts, I soppose you need enough cash in the account should the option be exercised ? Is that correct ?

[George the original one]

Believe rules forbid margin in IRA accounts.

[altoid]

@WAH and George: what suggestions do you have for newbies of option trading? Anything special to avoid?

The earning season just kick-started, any thoughts on riding the volatility ?

[IlliniDave]

You folks are braver than me!! Someday I might carve a tiny portion of my portfolio off for "fun money" to play around with this kind of stuff; but for me to do it with my for-real nest egg--I'd be better off going to Vegas because at least I could recoup some from the buffets In other words, I completely lack the savvy to tell whether a stock will go up or down in the short run.

[workathome]

I don't try to generate income with options anymore. The safest thing you can do is take a stock you own (e.g. IBM) and sell calls for extra income. If the stock rises much though, it'll be called away and you'll miss out on the capital gains while keeping the short-term (higher taxable) gains via the option.

My favorite options tool would be to sell puts in a stock you really want to own at a price you really want to own it at, but your intrinsic value calculation has determined is trading at market too expensive. It's not a income-generating strategy though. My second favorite tool be for hedging, like buying puts when Japan was insanely overvalued in the 80's, which Klarman mentions in his book.

[George the original one]

I looked at options and decided you have to be RIGHT too much of the time, as they truly are a zero-sum game.

[sshawnn]

I sold my first covered call yesterday. It was tiny on a seemingly secure equity position (PAAS) that I acquired recently but wouldn't be heartbroken if it were sold. If May 17 comes and I still own it, I will have barely profited at all considering brokerage fees and taxes. I am doing it more to become used to the processes (Ameritrade) before engaging in bigger trades.

[sshawnn]

My favorite options tool would be to sell puts in a stock you really want to own at a price you really want to own it at, but your intrinsic value calculation has determined is trading at market too expensive. It's not a income-generating strategy though.

For us crazy market timers this may be an excellent (re)entry strategy!