Quote:
Originally Posted by JL
I picked up some more CSKH earlier in the week. I also have JASO for a couple of years now. Anyone looking at STP?
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JL:
I bought the stock as $155.00.
I sold the April $155 call option for $4.75. This gives the person (in theory a person but it is really the CBOE or a random assignment) the right to buy my FSLR from me for $155.00.
The $4.75 was $475.00.
So, I did not mind being paid $475 to sell my stock for $155, on, or before April 15th at 5pm. The 15th is the last day of the April options. People can exercise their right up to 5pm.
The worst case scenario is the stock is above $155 and my stock sells.
The best case would be for the stock to close the 15th at $154.90.
I'd keep my stock, keep the $475, and be able to sit still for a few days or a week or two, and see if the stock takes off to the moon. At any time, I could sell another option for May. Maybe another $155, maybe a $160.
It would depend on the stock price at the time, and the date they will announce their earnings.
The put option is to protect my stock. I am protected all the way to June 17th, in case the stock should fall alot.
This will slowly lose value as we get near June 17th, and the stock stays above $145.
It is a covered call strategy, which is considered conservative, because it makes my break even on the stock go down to $151.25.
The put option goes "up" in value as the stock goes down, thus giving some protection.
The stock could go up or down, the afternoon they release their earnings.
Most stocks, but not all stocks, have options.
The use of options is becoming more and more popular among regular investors like you and me.
Now, suppose I did not have $15,500 to buy the 100 shares.
Someone who had $475.00 to risk, could have bought a call option (the exact same one I sold) and they would be hoping the stock was over $159.75 by April 15th. They can lose their entire $475 or part of it.
I doubt my stock can go to zero and I have protection.
Options are not as hard as they may sound.
They just give someone the right to do something. The call option I sold gives the person the right to buy my stock from me for $155.
My put option gives me the right to "sell" FSLR for $145 should it fall far below that. The $4.75 paid to me, is called the option premium. Since the stock was $155 and the price at which my stock would sell is also $155, then the entire $4.75 is called "time value" because the option had no intrinsic value. The time value was based on the fact that there were 4 weeks to go until the options expired. We now have two weeks to go.
My best case is the stock closes the 15th at $154.90 and then the next day it goes way up and I can sell. Options can be sold every month for income.
That $4.75 was 3.1% of the stock price. So, in a way, it is as good as a 3.1% dividend while I hold my stock for higher prices.
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