Trade Findings and Adjustments 03-14-2019
Options give us options…
What do we mean?
Q: What are some of the biggest weaknesses of options?
Time Value – Options last for a certain amount of time.
Q: advantages of options?
Leveraged – 100 shares of underlying stock
Long options – risk is defined. Can’t lose more than what you paid. Long Call is a hedge to stock ownership. $100 Stock would be 10,000. Long call would be around $3 per share. So you pay $300 to control 100 shares instead of $10,000.
What is most important? – learning how to manage risk, and what the potential risks are in our current market.
Jan. 2018: Ray Dalio, “if you have cash on the sidelines you’re gonna feel pretty stupid!” What happened? February 5th market crashed 13%
Sep. 2018: Ray Dalio, “you should be looking to be conservative and cautious with your portfolio right now.”
Even the best of the best can get things wrong! It’s important to know that it’s ok to guess wrong.
Using our brains: Talk to a mentor. i.e. Kevin, or myself. Talking through things, and bouncing ideas is invaluable.
Potential risks of our market? Potential trade war with China. Uncertainty.
If you pay attention to potential risks, options give us the ability to guess wrong.
Bull Call? It’s a long call that is capped by a short call. Short call is the hedging option. If the underlying stock goes down, we lessen our cost basis thanks to the short call.
Long Call? Go far out in time (1 yr or so), so that if things go the wrong way, it has time to come back. Lessen our cost basis by buying more contracts at a much lower price if it falls.
BA- April 26 Bull Call spread: $385 Strike Long Call @ 13.55 and sold $390 strike Short Call @ 11.54
11.54 – 13.55 = $2.01 cost basis. $5 – $2 = $3 of potential profit. $2.42 close limit for $.41 profit or $123.
V Leap Long Calls out to Jan. 2021 $160 Strike @ $17. Gives us time that if Visa pulls back again, we can dollar cost average by buying more contracts at a lower price. When it gets back up, you have more profit and can lower your break even cost basis. If cost basis is 1,700 and V drops to $140, we can buy more contracts for more like $1000-1200.