phee

iTrader: (5)

any experience with these? tips? is it hot air?
also, who do you use for your trading? (online)

Pete2010

Not a bad idea if you have lots of shares (at least 100) of stock that is moving sideways. Basically you're betting on the fact that your stock will go sideways or down. If it does go up you either back back the calls you sold, or your stock gets sold for the strike price.

I've done this with large cap stocks that I hold in my retirement account. Stocks like VZ, MSFT, etc... Based on trading fees, you really want to have 1000+ shares of anything you're selling to pull a profit (10 contracts).

I use the thinkorswim platform on tdameritrade. It's unbelievable for options. I tried OptionsXpress, but didn't like their interface as much at ToS.

phee

iTrader: (5)

thank you so much! very informative. I just watched a speaker talk about them but he ended up trying to sell software so I didn't know whether tp believe him or not.

LaCostaRacer

Brokers love to recommend options because they make a good and regular income on fees. There's always a profit motive on the part of someone recommending options often: commissions or software or financial management services- almost always a catch.

I have no idea why someone would want to sell call options on a stock they plan on holding long-term (e.g. IRA). What happens when the stock moves and you just lost it because you made $50 or $100 selling some call options on your long-term hold? You forfeit $1000's to make a $100. I had a money manager 10 years ago who played this game with one of my accounts and couldn't believe how quickly he could lose money so I'm very biased on this viewpoint.

Remember options require you to be right in both price movement and time frame. It's often hard to accurately predict price movement let alone time frame. I don't recommend options for the novice investor and rarely use them. I might buy put options for insurance in case a long goes down before I can bag a long-term gain in a taxable account but that's about it.

Pete2010

Exactly - I'm usually wary of people who recommend things and then in the same breath try to sell me something.

Selling covered calls is a great income strategy only if you know what you're doing. If you do not understand what the greeks are and how to use them, you have no place in options. And that is only one aspect of options you want to learn before putting real money to work. It's far to easy to completely lose your shirt.

Remember that you're selling it at a strike price that you agree on, and you keep the premium for selling the call and sell your stock at the strike. So if a stock is at 32 and you sell the Nov 34 call for .40, that's $400 - plus if the stock goes over 34 at expiration and you're called you'll get 34 for your shares plus the premium which is a little over 1%. If the stock does not go up you keep the premium, a ~1% gain in a month on a stock that is moving nowhere.

Also I've read before that something like 75% of all options expire worthless, so being on the selling side does give you an advantage (if you know what you're doing).

But you are 100% correct - they are not for novice investors. You should practice with a fake money account for at least a year or two before putting real money to work with options.

Sorry for the long post - i'm very bored at work.

phee

iTrader: (5)

thanks for the long posts. it's what I need. how did you guys get started. I've been doing paper stocks for about a year but never traded any options