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PaperclipPerfector  5d ago (text post)   2390 thread views

Friday Fun Thread for May 1, 2026

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It's definitely worth getting familiar with options. It seems like you already know the basics, and I believe everyone can benefit from understanding their risks and benefits.

The theta decay looks pretty brutal if you're not pretty spot on with your timing.

Yeah, and you can benefit from this by selling those options. Then you have theta decay on your side. Check out tasty trade on Youtube.

When you buy both a long and a put, are you basically betting on increased volatility? Not sure I understand.

Assuming you're referring to my synthetic longs, I'm selling a put and buying a call. It's combining two bullish positions to take advantage of their leverage and different cash flows (one uses cash to open and the other generates cash to open). Buying one call with the money received from selling one put will simulate the risk profile of owning 100 shares of the underlying. You're exposed to all the downside and all the upside.

But, yeah in general having a long put and a long call would need to count on a big move or an increase in volatility to be profitable.

Doesn't this expose you to potentially unlimited downside? If the company were to go tits up after you sold those put contracts, you would be obligated to buy a lot of horrible shares, no?

Ask yourself: if you had the cash you needed to actually buy 100 shares of something you thought was a good hold, would all this worry about exposure to the downside suddenly disappear?

If so, then it’s not the downside risk that you’re worried about; you’ve been through market volatility without panic selling. You’re worried about your cash position. Cash can be managed! Positions can also be managed to minimize chances of assignment. There’s recourse. Worst case, you wake up with 100 shares of some piece of crap and you owe your broker thousands of dollars. You can simply sell the shares to pay back the broker, and you may have to eat whatever loss makes up the shortfall. You just make sure you can handle that loss. And at the end of the month you pay the $4 in tax-deductible margin interest.

So why not use the money you set aside for the risk on even more call options instead? Does selling puts really make your bet more +EV?

Because the money is already in things like shares of VTI, SLV, and SGOV. Right now less than 3% of my total account value is in cash, despite my enormous notional exposure. I’m trying to fix that without having to sell any shares but it’s slow-going. For example I got assigned 100 shares of TSCO recently and that set me back on the goal.

Also, buying options is generally negative EV (you’re literally paying what’s called a premium) unless you are exceptional at picking direction and can predict strong moves. Brokers like Robinhood try to be clear about that when they tell you what your break-even share price will be when buying a call. I don’t consider myself good enough to speculate, so I’d rather rely on my appetite for risk and willingness to warehouse that risk for whomever is buying this stuff.

Hmm. :I

If I understand it correctly, the loss is at least capped at the original value of the 100 shares. Basically, you gain the advantage of owning stock without having to put up the same investment up-front, but you should have at least have a substantial percentage of the money for those 100 shares lying around in some way regardless so that you don't have to take a loan if things go south. But if you do this with multiple investment schemes that are in theory un- or only weakly correlated, then you can use the same stack of money as a guarantee for all of them without ever going negative.

This is basically correct. The maximum loss is the strike price of the put x 100 for one contract. Offset by whatever premium you sold the contract for (which you keep).

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