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Subject:  Re: Best calls 6/21/2019 Date:  6/19/2019  2:31 PM
Author:  captainccs Number:  115169 of 115826


I don't have a blog about options. What I know and do I've posted at NPI.

Options are a complicated derivative of stocks that for the longest time people did not know how to put a price on. More on that later. There are many ways of trading options. My interest has always been to generate income but there are other ways to trade options that I don't use and know little (or nothing) about.

Options give the buyer of the option a right that the seller must fulfill. There are two kinds, calls and puts. Calls give the buyer the right to buy a stock at a set price (strike price) until a set date (expiration date). Puts give the buyer the right to sell a stock at a set price (strike price) until a set date (expiration date). That's it!

How to use the above is where it gets interesting and the variations are multiple. I'm only interested in generating income from covered calls. New term, "covered!" When you sell an option you sell a right and take on an obligation. Your broker want's protection! If you don't come through, he's on the hook. You can secure your short call position with cash or with shares. The shares in your portfolio "cover" your obligation.

The Basics of Trading Options Contracts

selling covered calls for income

For the longest time people didn't know how to set a price on options. Then Fischer Black, Myron Scholes, and Robert C. Merton figured it out and Merton and Scholes got the Nobel Prize in 1997. Fischer Black missed out because he died in 1995. This formula revolutionized option trading but it is based on the wrong mathematics. Sorry, but that's Ph.D. level stuff! LOL

Other ways to trade options

option trading strategies

When you are ready for graduate work, Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg is the book to study. It explains in detail how options work which is what allowed me to come up with my strategy for creating income.

From start to now it's taken me well over a decade with some hard lumps on the way. Be careful.

Denny Schlesinger
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