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Having a comprehensive understanding of the risks of selling calls, ordinary people can also skillfully use options to “receive interest”

Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time
A summary of previous circumstances:Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage
Pick up the book last time
Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading.
After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered.
How to choose the right call to sell?
First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties.
If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock.
To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios
*For detailed selection steps, please see below:The parameters that influence the price of options
1) Due to risk considerations, pick recent calls to sell
Although options with expiry dates farther away are more expensive, option sellers are riskier, so be careful when selling forward calls
2) Due to cost considerations, pick a call with a higher price than the cost price to sell
3) The higher the volatility, the more expensive the options. Pick calls that implied high volatility to sell
Generally speaking, the higher the implied volatility (Hong Kong stock options are called fluctuation), the higher the premium, and the more suitable for being a seller, so to speak:The bigger the wind and waves, the more expensive the fish
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
What is the biggest risk of selling calls? Can you afford it? (including operation)
Little Tencent's stock is issued by the company; for him, the cost is zero. By analyzing fundamentals, he determined that Tencent's stock value of 410 was reasonable and set a psychological target price of 410.
If your stock was not given in vain by the company; you bought it at your own expense, then under normal circumstances, the exercise price of selling the call is higher than the cost of holding the shares. Of course you can sell stocks at a loss. After all, the stock market is a free and open market. (A case of failed call sales will be introduced in detail later. Interested friends can continue watching)
※Two major stages, four types of operation, flexible response
Stage 1: When the call hasn't expired
As long as the call hasn't expired, as a seller, the operating space is quite large. For example, when selling Call, the stock price was 350, and Call's exercise price was 410. Watching the stock continue to rise, the stock price once rose to 420
Situation 1: Steady and immovable, I can accept the exercise of authority in the end. This group of customers can go directly to stage 2
Judging the underlying stock trend: This is a slight increase, and it will fall back before the expiration date. I just watched them perform, because Tien Rong Xin didn't want to hold this part of the stock, and sold 410 and fully accepted it.
Note: Staying steady is not about logging out of the Niu Niu App, waiting for the day the call expires, and then logging in to take a look. Some stocks fluctuate greatly, causing the price of derivatives to also fluctuate greatly. If an extreme situation occurs, it will cause your account to become high-risk, and you need to operate according to the guidelines in a timely manner.
Case 2: Buy and close the position
Judging the underlying stock trend: Tencent recently made a major profit. I feel that it will rise to 500 later. Calls that previously sold 410 will be very at a loss. They quickly bought back the same amount of 410 rights prices from the market, calls that expire on March 3, and closed their positions. Enjoy the rewards of rising underlying stocks, and don't be greedy for this premium for the time being. At this point, the current round of selling calls to collect interest is over.
Phase 2: Call has expired
Situation 3: Assigned to exercise power, 410 lost 10 hands of Tencent
At the close of the market on March 30, when Call expires, if Tencent's stock price is above HK$410, then according to the options contract, the 10 Tencent positions in Little Brother's position will be sold directly at the price of HK$410. My Little Brother's account received HK$410,000. The previous sale of Call received HK$1,440 in royalties. *
*Note: Tencent's options are Hong Kong stock options. Most of them expire once a month. After closing on the afternoon of March 30, the assignment will usually be completed the next day, and the system will alert you; if you are trading US stock options, such as Tesla and Google options, most options expire every Friday, and usually the assignment is completed on Monday of the following week.
Biggest loss: Tencent's stock price has skyrocketed, and the rising portion will have no bearing on you
The shareholding+selling strategy suggests that you are optimistic about this stock for the long term. If the right to sell is exercised, the guaranteed shares will all be sold at the exercise price.
Extreme situations:On March 30, Tencent suddenly revealed a major benefit. Since then, the stock price has gone all the way up to 500, but your stock has already gone out at 410 on the 30th. You either watched the stock price rise or buy the stock again at the price of 500.
Can I afford to lose the most? You need to think clearly before selling a call.
Situation 4: If the stock price does not reach the exercise price, you can continue to hold shares and sell them
When the market closed on March 30, the call expired, and Tencent's price was less than HK$410. So, in the half month of waiting for Tencent's good price, my little brother didn't wait in vain. In addition, Tencent still had a 10-lot position in a position, and continued to buy at a price, so he could start the next round of call sales arbitrage and continue to collect interest.
Extreme situation: stock prices have plummeted, what should I do?
The above scenarios and operations are all based on Tencent's stock price hovering around 410, or a sharp rise in stock prices.
If the call hasn't expired yet, but the stock price has plummeted, what should I do?
Conclusion: Generally speaking, when the stock price falls, there is no need to act on the sales call; you can just sit back and collect the premium. However, it may involve the operation of the underlying stock. The details are as follows:
Situation 5: The stock price fell slightly and did not fall below the break-even point
Assuming that my Tencent stock holding cost is 320, the unit price of the options I sell is HK$14, and if I sell a call, I charge HK$1,400 in premium. In fact, my holding cost was diluted = 320-14=HK$306. As long as Tencent's stock price doesn't fall belowHK$306 (this is my actual break-even point), I'm all profitable, can stay stable, and don't operate.
If it falls below HK$306,Please see situation 6
Scenario 6: Stock prices plummet and fell below the profit and loss point
Before the call expired, the stock price quickly fell below 306, which is already below my break-even point. At this point, I need to make a judgment (this involves every investor's judgment on stock trends; I won't introduce them here):
① I think this is just a short-term decline. In the long run, Tencent's fundamentals are very good. It will eventually rise, so it can stabilize, collect royalties, and endure losses from falling underlying stocks in the short term;
② I think the recent downturn is irreparable. The downtrend has not bottomed out. I'm no longer optimistic about Tencent (or is planning to stop loss now, sell it, and then go to the bottom after it falls). Anyway, I'm currently planning to get out of the underlying stock, but I also don't need to manipulate options.
For example:
The cost of owning Tencent was 320. I sold the 410 call and used my shareholding as guarantee. The profit and loss point was still 306, and the stock price dropped from 350 to 320, and I feel like it will continue to fall. I quickly sold all of my holdings at 320, but my call could stay the same and collect the royalty. The stock used as collateral was sold due to a change in the underlying stock, and you are neededProvide cash as security deposit. In the above scenario,If you change from undercover call to naked call (sell call without holding shares)You will probably need to provide: HK$800-1,300 security deposit/call (since the security deposit level is affected by many parameters, please refer to the instructions on the page for the actual deposit amount).
It can be seen from this that:There is a high risk of selling naked calls, it is recommended that option Xiaobai users participate accompanied by a veteran options driver
The parameters that influence the price of options
1. Expiry date/date of exercise of power
Explanation:
Selling options is similar to selling insurance. The longer an insurance is valid, the more expensive it is; the longer an option (contract) expires, the more expensive it is.
There is an idiom “long nights and many dreams” that is very applicable to options: options that are longer until the expiration date require more money to cover unknown risks, soThe farther the expiration date, the higher the risk and the more expensive the price.
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
In the same time dimension, the farther the expiration date of an option, the more expensive the premium.
Additional notes:
From the time you hold a specific contract, its value will be lost over time. The closer the option to the date of exercise, the lower the option price (premium).
As shown in the figure below, since this option was issued in March 2022 and expired on March 3, 2023, the overall trend of the Japanese K-curve has been declining. By the end of March 3, '23, the price of this option will be equal to zero.
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
Points to note when selling calls:
As far as selling calluses is concerned, in order to avoid long nights and many dreams,Selling recent calls is more controllable, the risk is relatively low.
2) The exercise price of the corresponding underlying stock (or target)
Explanation:
For call, the lower the exercise price, the more expensive; for put, the higher the exercise price, the more expensive.
Points to note when selling calls:
If you sell a call when you have shares, you need to pay attention to the cost price of holding the shares. Little Tencent's stock is issued by the company. For him, the cost is zero, and he has a lot of room to operate.
If your stock was not given in vain by the company; you bought it at your own expense, then under normal circumstances, the exercise price of selling the call is higher than the cost of holding the shares. Of course, it's OK if you sell stocks at a loss.
3) Implied Volatility (IV)
Explanation:
The higher the IV, the more expensive the option.
It can be understood this way: the greater the wind and waves, the more expensive the fish. The more it jumps up and down, the more unstable it is, the more opportunities there are for arbitrage, and the more expensive the option price.
Points to note when selling calls:
Pick a call with a high level of implicit volatility to sell it. See the chart below for details
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
4) Fluctuations in the price of the underlying stock affect the rise and fall rate of options
The greater the fluctuation of the underlying stock, the more room there is for arbitrage in options
The price of options closely follows fluctuations in the price of the underlying stock. The following figure shows that on the morning of March 21, EST, Pinduoduo released earnings reports before the market. The underlying stock fluctuated greatly. Call's changing trend was consistent with the underlying stock, and the PUT trend was the opposite of the underlying stock.
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
Points to note when selling calls:
Generally speaking, the higher the increase, the more cost-effective it is to sell, but the increase is a range indicator, so don't rely on this indicator to enter the market mindlessly
See the image below for details:
Full text: 3,000 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the return on the stock, are willing to try using options to collect interest; Main content: Using options tools for low-risk arbitrage to maximize the benefits of the stocks they hold; the content of this article is valid for a long time A summary of previous circumstances:[Share Link: Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage] Pick up the book last time Tencent's brother discovered that the stock lying in his account could continue to receive interest using options tools, and then went to actual trading. After one operation, he still felt unrealistic: “They all say that options sellers have unlimited risks. If I operate like this, the worst result is that I just ship the stock I use as guarantee at the exercise price?” As long as you know the principles of selling calls, the above questions can be answered. How to choose the right call to sell? First, let's talk about the conclusion: The premise of a profitable call is that you are optimistic about a certain stock for the long term and plan to hold it for a long time. You don't expect it to rise sharply in the short term. On the basis of considering risk and holding costs, buy expensive sales and collect royalties. [Bye]If you're not optimistic about a stock at all, don't worry about it; it's more appropriate to find an appropriate price to sell the underlying stock. To choose the right call for your “love” stock, please refer to the followingRegularityHowever, it must not be used as a golden rule; it is also not investment advice; it cannot cover all scenarios *For detailed selection steps, please see below:Factors affecting option prices...
Summarize
“Trading” focuses on “buying low and selling high”. As an option seller, you must be discerning and find an “expensive” option to sell. Even if later trends are bad for you, you can buy and close your position at a more competitive price.*
*What is “opening a position”? What is “closing a position”?
Opening and closing positions:For many young people, it's a technical term, but it's actually very easy to understand.
Open a position = enter a hole,It refers to participating in the “game” of options, and at the same time can choose to act as a “buyer” or “seller”; when the “buyer” opens a position = buy call or buy put, you can enjoy the corresponding rights. It's like buying an insurance contract yourself. If the situation you are worried about happens (the stock price reaches the exercise price), you can find the “seller of insurance” to lose money; the “seller” opens a position in the same way as opening a position, except that the seller has to assume obligations, not enjoy rights.
Close a position = get out of the pit,Quit the options game and no longer perform your obligations or enjoy your rights.
Next teaser (being updated, stay tuned)
Issue 3: A Heartbreaking Case of Sales Failure, Come Watch
Phase 4: As an options buyer, you have the opportunity to earn several times more (As an options seller, the risk is manageable, but the benefits are limited. (In fact, there is a low threshold in the options field, but there is also an opportunity to capture excess profit - buy call)
Issue 5: How to use options to enjoy the earnings season?
Disclaimers
The relevant targets and cases mentioned in this article are for illustrative reference only and do not constitute any investment advice.
The above content is not and should not be considered investment advice, nor does it constitute an offer or solicitation of any offer to subscribe, trade or redeem any investment product. Option contracts are derivatives and are not suitable for all investors. You should carefully measure your suitability to participate in such transactions based on your own investment experience, investment goals, financial resources and other relevant conditions.
The risk of loss when trading options contracts can be extremely high. In some cases, you may lose more than the amount of your initial deposit. Even if you set backup instructions, such as “stop corrosion” or “limit price” instructions, you may not be able to avoid losses. Market conditions may make such instructions unenforceable. You may be asked to deposit an additional security deposit within a short period of time. If the required amount is not provided within the specified time, your open positions may be closed. However, you are still responsible for any shortfall in your account as a result. Therefore, you should research and understand index options before trading, and carefully consider whether such trading is suitable for you based on your financial situation and investment goals. If you trade options, you should be familiar with the procedures for exercising options and when they expire, as well as your rights and responsibilities when exercising options and when they expire.
This statement does not cover all risks of trading options and other important matters. As far as risk is concerned, you should first understand the nature of the contract to be entered into (and the relevant contractual relationship) and the extent of risk you will have to bear in this regard before entering into any of the above transactions.
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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