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Is the "Selector algorithm" you use around or is it something you created on your own? Pretty neat idea!

I've been working on it for over a decade but it only got into high gear after I converted the spreadsheets into a php web-app. The spreadsheets were too labor intensive. Now I spend about half an hour downloading some 75 option chains from the CBOE website and uploading them to the web-app. The web-app does an initial selection in seconds producing a sortable table. I then select a half dozen to a dozen candidates which I transfer to a Trade spreadsheet where I do the final selection. One of these days I'll convert the Trade spreadsheet into a php script.

The fun part of the market is not the trading but finding the best stocks to buy. By automating the trading part I have more time for the fun part, marker research.

Denny Schlesinger
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Hi Denny,

Uma pergunta por favor,

Options have intrigued me for over 30 years but I've never actually used them. This may be a stupid question but I'mm going to ask it anyway. I'm assuming that a call gives the buyer the option to purchase the stock up to the expiration date at ANYTIME.

Therefore, if you buy the stock and sell the call on Monday... it goes above the strike price on Tuesday and could get assigned at any time. Once that happens you could then reload the trade at a higher strike price and add to your weekly profit. Is that correct?

I've been following your methodology and I'm very intrigued.

Obrigado,

Darryl
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Options have intrigued me for over 30 years but I've never actually used them. This may be a stupid question but I'mm going to ask it anyway. I'm assuming that a call gives the buyer the option to purchase the stock up to the expiration date at ANYTIME.

American style options, YES!

American vs. European style options
https://www.google.com/search?client=safari&rls=en&q...


Therefore, if you buy the stock and sell the call on Monday... it goes above the strike price on Tuesday and could get assigned at any time. Once that happens you could then reload the trade at a higher strike price and add to your weekly profit. Is that correct?

Once the option is assigned the trade is over. Do whatever you want with your money. BUT options are seldom assigned before expiration, the exception being if the shares are about to pay a dividend which the option holder will want to collect. The scenario you paint is high unlikely.


Obrigado,

De nada.

Denny Schlesinger
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Thanks Denny. I remembered that they usually last to the end, but didn't know if that was just the way they are used or something unseen rule. My wife's grandfather used to sell covered calls and explained the process to me when I was in college. Once we got married my FIA totally discouraged me from using them. Always been intrigued though. If I take the dive in, I'll keep you updated with my results.

Best Regards,

Darryl
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so Denny, if the stock falls, what do you do, resell calls again?. this works, unless get a big drop of course, what do you do then?

what about the opposite, sell PUTS. same amt of money tied up, and if the stock falls and you are put to, probably getting the stock a little cheaper than if you bought it to sell calls, and then can sell calls against it.

Thanks, Tom
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ideally you would like is a market neutral strategy, where you harvest premium whether the market goes up or down
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While you own the call you are in control of the shares at a fraction of their cost. Why pay for them? Dividends and expiration are the only reasons I can think of.

I wish you the best with your call trading.

Denny Schlesinger
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I assume you have considered starting your strategy by selling cash-covered puts rather than an outright purchase of the stock (thus making it potentially a 2 week cycle) but have obviously not chosen to do so. Is there a reason that you decided? Or just personal preference?

Tim
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Tim:

In theory puts and calls are the same but in practice they are not. The difference is in the cash flow. Buy the shares and sell the call and the worse that can happen is that they hand you some money for your stock. Sell the put and you might have to pay out cash. In theory you have the cash in deposit with the broker but more likely you are using margin. Unforeseen circumstances can cause problems. I started selling puts in December 2008 and did very well until the bull run ended. Around 2009 or 10 my broker decided to close certain foreign accounts and my new broker would not let me sell puts. I had to buy back the puts at the worst possible time and lost a lot of money. Selling calls is lower risk.

Additionally, it's hard enough to find the best calls to sell without the complication of adding puts into the process. I doubt the puts would improve the total outcome by much but prove me wrong.

This week I have been listening to a number of famous investors as well as to Daniel Kahneman. In conclusion, value investing is hard, growth investing is not quite as hard. Formula investing is better than trusting intuition. One thing is true, to make money sell what people want to buy. What do investors want to buy this week? Whatever they are bullish on! How to find out? Check out what calls they are bidding up.

Denny Schlesinger
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Last week I made a series of changes to the Selector algorithm to get better and more realistic results.
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Hi Denny,

Is the "Selector algorithm" you use around or is it something you created on your own? Pretty neat idea!
I am retired with one IRA loaded with AAPL, the most lovely mpfd in mostly cash and some SaaS stocks as of lately. Also a cash full margin account but like how you spend more time (like I am) away from the Market.

Sorry if this was discussed before but i have not been up to date at the Fool. Stay well all.

Best,

mpfd
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Is the "Selector algorithm" you use around or is it something you created on your own? Pretty neat idea!

I've been working on it for over a decade but it only got into high gear after I converted the spreadsheets into a php web-app. The spreadsheets were too labor intensive. Now I spend about half an hour downloading some 75 option chains from the CBOE website and uploading them to the web-app. The web-app does an initial selection in seconds producing a sortable table. I then select a half dozen to a dozen candidates which I transfer to a Trade spreadsheet where I do the final selection. One of these days I'll convert the Trade spreadsheet into a php script.

The fun part of the market is not the trading but finding the best stocks to buy. By automating the trading part I have more time for the fun part, marker research.

Denny Schlesinger
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No. of Recommendations: 2
Hi Denny,

I'm totally intrigued by your covered call methodology.

I've been selling covered calls for the last month on some of my shares. Everything is going pretty well. This is my 4th week and I'm averaging 2.3% per week of option income, not counting stock appreciation profits (or losses).

I could be better but my FSLY shares were assigned on 7/10. No problem... I just bought them back on 7/13. However, I purchased them at $95 and they promptly dropped. When this normally happens with stock I own, I don't sweat it. Once I've determined nothing has changed with the company I either buy more or just wait it out. But now I have a short term option window to look at. What I've been doing is selling options at a $95 strike and making them due in 2 weeks instead of 1 week. I can still average 2% that way and not risk selling at a loss.

My question is... how do you handle this scenario?

I'm stuck between 2 trains of thought. The first is shown above. I know I'm price anchoring here and my original shares were purchased at a lower cost.

The second would be to maximize the option premium and lower the strike price in order to do that. I would risk losing my shares at a lower price than $95, but they would be higher than my averaged overall price.

I'm not looking for you to tell me what to do. I just want to understand your thought process when this occurs. As we all know there are a lot of ups and downs. It's easy when everything is going up. Not so easy on the downside.

Obrigado,

Darryl
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You might first want to read "Covered calls: Portfolio management" because there I lay out some of the relevant ideas https://boards.fool.com/covered-calls-portfolio-management-3...

--------------------

I'm stuck between 2 trains of thought. The first is shown above. I know I'm price anchoring here and my original shares were purchased at a lower cost.

The second would be to maximize the option premium and lower the strike price in order to do that. I would risk losing my shares at a lower price than $95, but they would be higher than my averaged overall price.


You are anchoring in both trains of thought. There are several values

1.- Exchange value, somewhere between bid and ask

2.- Intrinsic value, we all know what it is but no one can calculate it

3.- Expected value, your best guess of the value at some future date

4.- Anchoring, the price you paid

Anchoring is a very bad idea and a terribly difficult habit to get rid of. Just because you bought at a certain price that number has no meaning outside the IRS. The only actionable value is exchange value. Intrinsic and expected value we use to calculate risk or estimate uncertainty. Nothing except your brain is influenced by anchor value.

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... my FSLY shares were assigned on 7/10.

Mine too and that closes that trade. End of story!

I just bought them back on 7/13.

No, you didn't. You started a new trade. You could have used the money to start any other trade. ;)

I purchased them at $95 and they promptly dropped.

I purchased them at $93.0085 and they promptly dropped.

When this normally happens with stock I own, I don't sweat it. Once I've determined nothing has changed with the company I either buy more or just wait it out. But now I have a short term option window to look at. What I've been doing is selling options at a $95 strike and making them due in 2 weeks instead of 1 week. I can still average 2% that way and not risk selling at a loss.

In this new trade you sold at-the-money calls and all the rest of the above is irrelevant. Forget about average, what yield does this trade have? Were there better trades you could have made with some other stock?

--------------------

I'm not looking for you to tell me what to do. I just want to understand your thought process when this occurs. As we all know there are a lot of ups and downs. It's easy when everything is going up. Not so easy on the downside.

In the FSLY scenario you painted you had two independent trades, the first made money and the second is underwater as FSLY is below $95. You have the shares. What to do? Depends on "Portfolio management." If you only want the Fastly for option trading, figure out what is the best covered call you can trade if instead on having 100 shares of FSLY you had $7,880. Forget $9,500, that's a fairy tale where the wicked witch ate some of your money. My situation with Fastly is different because I had been considering making it a long term hold. On July 22 I bought some more at $83.77 and yesterday I sold out-of-the money calls. It's below $80 before hours, I might buy some more.

In the Portfolio management thread I only had two categories of stock positions, hold or trade. Now I've added an in between category, hold but sell out-of-the-money calls. These are somewhat lower conviction stocks. One keeps on learning.

BTW, the idea of two week options is a good one when one week's don't work well enough. Thanks, one keeps on learning and learning. I used it yesterday!

Obrigado,

De nada!

Denny Schlesinger
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Thanks Denny!

I had read the portfolio management post back in June. It was the catalyst that jumped started me into this. I went back and re-read it. I picked up on a couple of things that I passed over before.

All of the stocks I'm selling calls on were already in my portfolio, so I'm totally ok if they don't get assigned. I'm selling out of the money. Taking a little hit on the premium but also hopefully getting rewarded if the stock increases. In my mind I knew I was trading FLSY wrong, but couldn't shake off the $95 "break even" price. Thanks for helping me with that.

BTW, this week I also sold calls on DDOG. I was able to get a higher return per week by going out 2 weeks on it also. Didn't expect to see that.

Darryl
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"BTW, this week I also sold calls on DDOG. I was able to get a higher return per week by going out 2 weeks on it also. Didn't expect to see that.


Not sure what your specific dates are, but the higher premium might be if 2 weeks is after earnings and 1 week was not. People will pay more for the expiration in ER week expecting a pop.
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DDOG earning Aug 6, 2020

Denny Schlesinger
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That explains it. The option expires 8/7.
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