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Scope In this drill #4, we will learn about the option strategies that are suitable for small value accounts. Most investors start small, so it is important to know which strategies are appropriate for small sized accounts Homework Execute these trades Sell a put spread Sell a call spread Do these in the paper trading account Share the trade and following with me: Max risk if both the legs of the spread expires ITM Max profit if both the legs of the spread expires OTM and ROI in that case What will you do if on the expiration day, before end of trading time, the short leg is ITM and long leg is OTM Due date for homework : May 14,2024
Scope State of Moneyness of an option contract – ITM, OTM, ATM etc. Nuts and bolts of assignment and exercise process Homework Evaluate each option trade Think through expiration day Against each trade. Write what will happen if you do not close the option trade before expiry What will be the impact of that on your portfolio (consider tax implications too) Due date for homework : May 07,2024 Sample Homework Trade: Covered call on SHOP at strike price of $95 expiring on June 21, 2024 Assignment Condition: SHOP closes $0.01 above $95 at the end of June 21, 2025 trading day Assignment Impact: 100 shares will be sold from my account and $9500 will be credited to my account. Selling 100 shares will trigger a taxable event. I had bought these shares at cost basis of $40 within a year so will have to pay for short term capital gains tax I do not want to pay short term capital gains tax, so my next step will be to close the trade as it gets near to the expiration date to avoid the assignment
Scope Basics of call option contract Learn a better way to sell shares at higher than current market price How to generate consistent dividend income using call option Homework Homework for Drill #2 – Generate income from the shares that you hold by selling covered call Enable Options Trading in a brokerage account. Sell a cash secured put on the stock that you won’t mind owning 100 shares – if you didn’t do after Drill #1. For existing shares in your portfolio, sell a covered call i.e one call against 100 shares at the price you want to sell the stock. Do this in your paper trading account. Please share your paper trades with me in the #boot-camp channel of Slack group Or via response to this email. Due date for homework : Apr 30,2024 SAMPLE TRADE I did in paper trading account today Markets were in red because of META results and SHOP is now at a price point that I won’t mind owning it. So, I bought 200 shares of SHOP at $70.62 My intent : To own SHOP for long term, but I want to generate some income from them Trade : Sold a 1 contract of call option at $95 for June expiration (57 days away) and collected $1.16 Scenarios at expiration: If stock goes beyond $95 : 100 Shares will be called away and it would result in 36% RoI in 57 days for those 100 shares. I will still have 100 shares available in my portfolio to enjoy the further upside if it continues to go higher If stock stays between $70.62 and $95 : I keep the $116 with me. This is the income that I have generated from selling the covered call. Stock closes below $70.62 : Portfolio will be in loss, but the loss is reduced by $116. The covered call premium serves as a cushion against the drawdowns.
Scope Introduction to options Why options Building blocks of options Understanding Put options How to acquire shares at lower than market price and get paid for waiting Homework Find a company of which you would want to own 100 shares. Sell a put option at the strike price at which you are comfortable owning the shares. For expiry date : May 17. 2024.
