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Can you buy and trade Long Call/ Long Put (or Short Call/ Short Put) stock options as a steady income? Without margin? No other strategies?

2007-03-24 16:19:41 · 9 answers · asked by westphalia1 2 in Business & Finance Investing

9 answers

I think if you only buy long option positions it would be very difficult (nearly impossible) to make a living. In theory it would be possible, but you would have to very good in picking the options you bought. You would not need a margin account if you only take long positions.

I have seen people with large accounts make a living for two or three years writing (selling short) options, a strategy which does require a margin account. However, most of them have lost more than a years' worth of profits in a short time when the market has moved against them. (The ones I have not seen experience such losses have not traded long enough to run into such a market move.)

Every professional option trader I have seen making a living at it for an extended period of time has traded spreads. Most, if not all, of them also use stock positions to hedge options positions at times.

2007-03-24 18:37:35 · answer #1 · answered by zman492 7 · 0 0

Options can best used to help hedge or protect an equity position. For example, the covered call, protective put or collar are spread strategies that most anyone can use. However, a margin account is required. I do not recommend, unless you really know what you are doing, option strategies such as selling naked puts or uncovered call writing. Most discount brokers will not let you do it anyhow unless you have at least about $25K in cash/securities in your account. Even naked put writing is very dangerous because you potentially could be "assigned" virtually worthless stock and many speculative investors have been wiped out this way. As for uncovered call writing, you might as well just go bet in Las Vegas, in my opinion, to try this speculative and dangerous strategy. You will have to come up with stock potentially at a very high market price to deliver it at a much lower strike (ouch!). As for the collar, not everyone likes doing it but I think it can be quite profitable. You can write a covered call and buy a put, both out-of-the money. The risk is being assigned, but if you write out of the money, you are not going to lose anyhow. Besides, you still make some money and can keep playing. If you really don't want to lose the upside, just buy the protective put. Sure, it will likely go worthless, but so what? Do you consider owning car insurance worthless if you don't have an accident? Lastly, puts can be a good thing, and they are MUCH better than Selling Short, which in my opinion, is about as dubious as uncovered call or naked put writing.

2007-03-30 13:07:30 · answer #2 · answered by soflamiami 1 · 0 0

You don't need a margin account to buy calls or puts or to sell calls on stocks you already own. You will need clearance from your broker to trade options (they won't let you buy calls or puts without at least some experience, generally.)

In theory you could do it. Of course options are FAR riskier than stocks because they lack any intrinsic value--even if a stock does what you think it's going to, if it does it after the expiration date for the options your correct market judgement is worthless. Any investment vehicle, no matter how much money it can make, should be viewed with great suspicion if it can lose you 100% of your money in a few weeks.

You can also simultaniously buy calls and puts on the same stock as a hedge. While this does reduce your risk it also reduces the opportunities for profit. You'd almost certainly have to engage in some form of hedging for your own protection.

In practice they're probably best kept as a small part of your portfolio. Unless you are a very experienced investor who is very good at spotting turnarounds in stocks I'd use them extremely sparingly.

2007-03-24 19:39:15 · answer #3 · answered by Adam J 6 · 0 0

To your question of selling before buying is a very interesting question. Actually, what you do is look into the screen or go to a broker. If someones quotes to buy for say x dollars and if you want to sell then you get into the deal. Or you can quote your sell offer and someone if interested can buy into your quote. There is no need to buy before selling. To your first question you have two options. When you want to sell out your bought positon you make a sell at the new quoted price and vice versa for sold position ie; buy into a sold position. That is if you bought Sept IBM for 180 few days back for $4 and today or any day till expiry you can sell another position say IBM 180 for that days quoted offer. This way you would have squared off your position. Mind it that you hold the original position but the loss that can incur will be minimised by taking opposite action on a later date. The second option is run your position to expiry in which case if you have gained then conditional allotment take place where the gain you incured will be assigned to someone who is in the opposite market at expiry. In US sometimes your opposite player will be assigned the conditional sale or buy instead of anyone like him. So it is your responsibility to avoid the risk of conditional allotment by squaring of positions as you deemed you are in the money or out of money for long after taking a position.

2016-03-29 03:14:44 · answer #4 · answered by Anonymous · 0 0

Options are kind of financial insurance instruments thus buying them has low probability of profit.

Most option option investment programs are based on short selling (writing options) but this strategy needs high knowledge of risk management.

2007-03-24 19:47:54 · answer #5 · answered by efpol2000 2 · 0 0

to do this you need to be right and you need a margin account. In this flakey market you have a good chance at losing your shirt. It's not a wise stragety.

2007-03-24 16:39:26 · answer #6 · answered by Anonymous · 0 0

You will need a margin account.

What you want to do is a straddle? It's not always in the money though.

2007-03-24 18:34:11 · answer #7 · answered by joe s 6 · 0 0

If you have to ask this question, then the honest answer is that while technically it might be possible to do, YOU would not be able to do it. You'd just be gambling with your money. (Which is your right, if you so wish, but you might do better picking a horse!)

2007-03-31 15:53:51 · answer #8 · answered by Anonymous · 0 0

Yes. (If you have at least $250,00.00 USD)

2007-03-25 10:51:41 · answer #9 · answered by Anonymous · 0 0

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