I noticed ROKU call option for Jan 2021, at current price will give 27% profit. Is there any reason to not buy 100 stocks, and sell call option, and have guaranteed 27% profit. I understand, there will be loss if the stock price fell below 27% of current price, and in case the stock price went above 27% , the profit is capped. If this is a good strategy, how can i find similar stocks?
How do you plan to react if the stock drops to $27 in the same time period, back to where it has traded in the past 365 day period?
Good question: I will buy back the same option (which should drop as the stock price drops) with some profit, and sell the stocks, with some loss. I would prolly do that at 10% overall loss or so, before it hits $27. It is not much different than any stock you own is going down, and infact you make money by buying back stock option at reduced price (ofc not enough to cover the losses).
What you are suggesting isn’t likely possible. That’s the gotcha.
ATM call is around 50 delta. You're holding 100 stock. So overall you're still long 50. which means every $1 drop in price, you'll lose $50. If you're willing to take the risk, go for it. Otherwise, sounds too risky for me
1 dollar of extrinsic value there's still intrinsic value for the option contract itself so OP will most likely lose more depending on the gamma
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If you buy 100 shares spot then sell a call then you've executed what's called a covered call. Since spot is 160.5 when you sell the 165 call you get premium from the option buyer this plus the appreciation of the stock equals your max profit. If the stock declines you lose money on the spot trade but your option expires worthless in the the profit gained from the premium gained from selling the call can reduce the cost basis of your spot meaning it takes a greater decline to reach break even then if you bought spot at the market price. If the price dramatically shoots past 165 your forced to "cover" your call and forced to sell all your stock at 165 although you lose out on potential profit of the spot it's the best case scenario since you also keep the premium and fully appreciated spot.
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