* -- Options for the Small Account
Let's face it. This is a really tough market for small accounts. You can either wait to build up your account to something decent to actually be able to trade some of the broader (and more expensive) market offerings, dollar cost average in a few shares at a time at all time highs (that doesn't sound enticing, although that's what a lot of people do when they're first starting out), or you can do what you can afford, and that is likely to mean lower priced underlyings, a lot of which are low for a reason. However, there are various options strategies that will allow you to potentially make money on lower priced underlyings or use strategies such as Poor Man's Covered Calls on reasonably priced exchange-traded funds that don't expose you to single name risk (e.g., GDX, XOP, etc.).
Granted, a bullish assumption play in MNKD isn't the best to start off this series with. MNKD has all sorts of warts, not the least of which is that 1/5 reverse split earlier this year. That being said, the background implied volatility is at a whopping 172%, making a short put/acquire/cover cycle trade ideal if it hangs in there around this price level for any period of time.
Here, I'm looking to maximize the credit received at the door, and that is by going at-the-money:
Probability of Profit: 60%
Max Profit: .92 ($92)/contract**
Break Even: 4.08/share
Delta: 34.82
Theta: 1.53
The notion here is to run the option until expiry. If, at expiry, price is above the 5 strike, I keep the entire risk premium collected. If below, I am assigned shares at $5, but with a cost basis of $4.08. At that point, I will immediately sell short calls against the position, further reducing cost basis and will look to bail from the position via call away at the short call price.
** -- Friday's close mid price for the 5 short put was .92, which may require some adjustment on market open.
Let's face it. This is a really tough market for small accounts. You can either wait to build up your account to something decent to actually be able to trade some of the broader (and more expensive) market offerings, dollar cost average in a few shares at a time at all time highs (that doesn't sound enticing, although that's what a lot of people do when they're first starting out), or you can do what you can afford, and that is likely to mean lower priced underlyings, a lot of which are low for a reason. However, there are various options strategies that will allow you to potentially make money on lower priced underlyings or use strategies such as Poor Man's Covered Calls on reasonably priced exchange-traded funds that don't expose you to single name risk (e.g., GDX, XOP, etc.).
Granted, a bullish assumption play in MNKD isn't the best to start off this series with. MNKD has all sorts of warts, not the least of which is that 1/5 reverse split earlier this year. That being said, the background implied volatility is at a whopping 172%, making a short put/acquire/cover cycle trade ideal if it hangs in there around this price level for any period of time.
Here, I'm looking to maximize the credit received at the door, and that is by going at-the-money:
Probability of Profit: 60%
Max Profit: .92 ($92)/contract**
Break Even: 4.08/share
Delta: 34.82
Theta: 1.53
The notion here is to run the option until expiry. If, at expiry, price is above the 5 strike, I keep the entire risk premium collected. If below, I am assigned shares at $5, but with a cost basis of $4.08. At that point, I will immediately sell short calls against the position, further reducing cost basis and will look to bail from the position via call away at the short call price.
** -- Friday's close mid price for the 5 short put was .92, which may require some adjustment on market open.
Trade active:
Went with the Nov 17th 5.5 instead, which was filled for a 1.05 credit. Cost basis is 5.50 - 1.05 = 4.45.
Trade active:
Have been patiently waiting for a bounce to sell calls against, well, like, forever, but haven't gotten one yet ... .