Knowing the right strategies could help turn a bad trade into a good one.
I had been using moo moo to experiment with strategies I've learn such as scalping, and options strategies such as WHEEL and LEAPS, since the fees are much lower. The biggest learning I had was from using options strategies for my investments. This is my story of how I mitigated a bad timing trade with $Palantir (PLTR.US)$.
So when the stock price had started to drop hard, I found the price to be attractive and wanted to get some shares of it. so I sold a put option at 22, collecting usd120 of premium. 22 was a price I'm willing pay for the shares anyway so why not earn more from the premium.
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However the share price keeps dropping as the interest rate and inflation risk kept the whole market in a sea of red. the stock kept dropping day after day and finally today it is at about 18. I was going to have to buy 100 PLTR at 22 this Friday due to the put option I sold. Today I decided that buying at 22 isn't a good deal for me so I decided to roll down and out instead. So I bought back the put and sold another put with a strike of 21 instead. doing so I earned another usd107 (100 from a lower strike price and 7 from premiums), on top of the usd120 I've gotten earlier on.
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With that I have given PLTR some time to recover. If the price is still unfavourable when it is near expiration, I can roll it again and get more premium, while not being "forced" to buy the share at a "bad" price. Or I can just let the option get exercised and buy the share at 21 instead. Accounting for the premium I recieve that means the shares technically cost only 19.8 (21.00-1.20).
All in all, I learnt and experienced the power of applying option strategies to help enhance my investment journey. Hope it will help you too.
Adding some tickers so that they might be able to see if this strategy is helpful for them when investing. $Grab Holdings (GRAB.US)$ $Futu Holdings Ltd (FUTU.US)$ $Tesla (TSLA.US)$ $UP Fintech (TIGR.US)$ $Alibaba (BABA.US)$ $C3.ai (AI.US)$ $Robinhood (HOOD.US)$ $Coinbase (COIN.US)$ $Advanced Micro Devices (AMD.US)$ $Taiwan Semiconductor (TSM.US)$ $Disney (DIS.US)$ $Alphabet-A (GOOGL.US)$ $Apple (AAPL.US)$ $NIO Inc (NIO.US)$ $Starbucks (SBUX.US)$ $Qualcomm (QCOM.US)$ $Sea (SE.US)$ $DocuSign (DOCU.US)$ $Lucid Group (LCID.US)$ $Sono Group (SEV.US)$ $Rivian Automotive (RIVN.US)$ $Applied Materials (AMAT.US)$ $DiDi Global (Delisted) (DIDI.US)$ $NVIDIA (NVDA.US)$ $Intel (INTC.US)$ $Unity Software (U.US)$ $JPMorgan (JPM.US)$ $Bank of America (BAC.US)$ $American Airlines (AAL.US)$ $WallStreetBets (LIST2555.US)$ $Berkshire Hathaway-B (BRK.B.US)$ $Citigroup (C.US)$ $AT&T (T.US)$ $Discovery-A (DISCA.US)$ $Netflix (NFLX.US)$ $Uber Technologies (UBER.US)$ $Realty Income (O.US)$ $Cenntro Electric (NAKD.US)$ $AMC Entertainment (AMC.US)$ $GameStop (GME.US)$ $TripAdvisor (TRIP.US)$
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High Profit Low Loss : May I know when you short means you buy a put option to sell 100 shares at strike price and then collect a 100 shares of premium ?
I’m very confused, please enlighten me.
Thank you!
High Profit Low Loss : Buy means you are buying a buy call option at a lower strike price and you have to pay premium for the 100 shares is it?
doctorpot1 OP High Profit Low Loss : I sold a put option at a strike of 22, which means the buyer can sell me his 100 shares for 22 if he wants to. it is written as short because I sold it.
Because I sell at 1.2. the buyer have to pay me 1.2 x 100 = 120.
doctorpot1 OP High Profit Low Loss : selling put is different from buying put.
if you buy put means you have the choice to sell the seller 100 shares at the strike price, but you have to pay him a premium for giving you this rights.
if you sell put means the buyer have the choice to sell you 100 shares at the strike price, but the buyer have to pay you a premium for giving him the rights.
High Profit Low Loss : Very well explained, thank you v much doctorpot1!
doctorpot1 OP High Profit Low Loss : there is no call options here. because I don't want to buy the share for 22, and I already sold a put option so I have to buy back the put option I sold. if I don't buy back means the buyer of the put option can "force" me to buy 100 shares at 22 each. So once I buy back the put, I sell another put option but this time at a lower strike price.
to make sure I don't lose money, I sell the new put at a higher price then what I buy back the old one for. I.e. old one I buy back at $368 so I sell the new one at a higher price $375.
Serendipity95 : How do you sell a put option at 22 for when it strikes at 18 you have to buy at 22? I only see strike price in MOOMOO options
doctorpot1 OP Serendipity95 : you can see it in the options chain. select the expiry date then scroll to find. to sell you need to have enough cash in the app (in case the other person exercise you have to buy it so moomoo need you to have some money to cover it). then when you sell, the premiums goes into your account. you also got a put you want to roll ah?
Serendipity95 : But when you sold a put for 22, since now is already 19 so why don’t the buyer just exercise his rights and buy the shares back at 19? Ultimately he still earns back some money and his shares by exercising his rights
doctorpot1 OP Serendipity95 : they could but usually they will just sell the put option in the market. Selling the option will earn more (cause you earn both extrinsic and intrinsic value). plus they might be waiting for it to drop more as well. usually people only exercise on the last day (broker will handle it).
but you are correct one risk I face is them exercising early and I have to buy it but I'm OK with it since I would have bought anyway.
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