OT - Money / Investing Thread (aka financial no stupid questions)

[medinabuckeye1]

do you have $$$ on this game?

Wrong thread, sorry

[Cincydawg]

I understand the AI centers need a lot of power and water, so I was looking at some power producers like GE Vernova (which I own a bit of because I used to own GE).

[iahawk15]

Perhaps more appropriate for the tech nerd thread, but what is the path to profitability for OpenAI and Anthropic? I'm not more than a casual observer to the investment side of this, but I guess I see four buckets: Supply chain (Brad covered), Major players in model development (OpenAI, Anthropic), minor player in model development and companies trying to build in-house models, companies leveraging major models.

Based on my limited observation:
Supply chain - $$$
Major players - ?
Minor players / in-house investment - ???
Consumers of major models - $$$

Thoughts?

[847badgerfan]

A one possession game with 2 minutes left is about all you could ask for.

You talking about the market today?

[medinabuckeye1]

Ahh, so you were selling puts too, not buying them. The problem with that, for me...

100 shares of stock is worth $63,300 right now. If I sell a put at 570, that means that if the put exercises I need $57,500 liquidity for each block. The premium of a 790 call and a 570 put is only 121.97, so I'd earn $12,197 (less taxes) which is far lower than my current liquidity. If I write a put at 570 and a call at 790 against my entire position in that stock, I'd have to sell a significant portion of other holdings to buy if the put exercises. And it's on a concentrated position in a stock I want to diversify away from, so I don't necessarily want to own more of it right now.

Yeah, I meant that as more of a general comment about options not specific advice to your situation.  

I'll build that out a little with my upthread example, here is what I generally would do using the GM at ~$72.50 price.  

Say that given my portfolio size and risk tolerance I want to hold stocks in roughly $5-10k amounts.  Thus if I want GM, I ultimately want 100 shares of it (100*72.50=$7,250).  

My opening position will be to write (the seller of an option "writes" it) a put a little under the current price for 400 shares (4 contracts) three months out.  So I'd write a May put on GM at say $70 for 400 shares.  Say I get $1.50 for it so that is $600 but now I have to have $28,000 cash available because if the stock gets put to me I need to pay that for it ($70*400=$28,000).  However, I got $600 for writing the put so that is part of it, I just need the other $27,400.  In the next three months one of two things happens either:

• The stock stays over $70 and I do NOT have to buy 400 shares for $28,000.  In this case I pocket the $600 and start over.  or
• The stock drops below $70 and I DO have to buy the 400 shares for $28,000.  In this case I now own 400 shares of GM but my basis isn't actually $70 it is $68.50 because I got $600 then paid $28,000 for a net of $27,400 and I have 400 shares ($27,400/400=$68.50).  

In case #1 I just start over and usually do it again.  

In case #2 I now own 400 shares of GM that lets say is trading at $69.  The good thing for me is that remember I only paid $68.50 for it so I'm up $0.50/share or $200.  Now I do the straddle.  Recall that I wanted to own 100 shares so I write a call on 300 shares at $70 and a put on 300 shares at $67.  Say I get $1.75 for the call (because it is only $1 over current) and $1.25 for the put (because it is $2 under current).  The spread here is intentional because I kinda DO want to sell 300 shares and I'd rather not buy 300 shares.  Ok, for those options I get:

• $525 for the call ($1.75*300) and 
• $375 for the put ($1.25*300) for a total of $900.  

Viewing this holistically I now own 400 shares of GM and in total I have $26,500 in it ($28,000-600-525-375=$26,500) so I now have $66.25 per share in this ($26,500/400=$66.25).  Now three things can happen (technically more but the others are more-or-less irrelevant):

• The stock goes above $70 so 300 shares get called away from me at $70.  I get $21,000 and I'm left with 100 shares of GM.  In this case I now own 100 shares of GM and in total I have $5,500 in it ($26,500-21,000=$5,500) which works out to $55/share.  
• The stock stays between $67 and $70.  In this case I still own 400 shares of GM which I have $26,500 in and I can do this all over again.  
• The stock goes below $67 and I get another $300 shares put to me at $67 so I have to pay $20,100 and I now own 700 shares which I have $46,600 in ($26,500+$20,100=$46,600) which is $66.57/share ($46,600/700=$66.57.  

In the case of #1 I'm pretty much done trading GM and I'll just hold the 100 shares that I originally wanted.  

In the case of #2 I just rinse and repeat.  

In the case of #3 I now have WAY more GM stock than I want to hold.  I own 700 shares which I have $66.57 per share in and I ultimately only want to hold 100 shares.  At this point I will sell two calls.  I will sell a 2 month call that is either "in the money" or barely out of the money.  Ie, if GM is trading at $65.25 I'll write a 2 month call on 200 shares at $65.  Then I write a three month call on 200 shares at (usually) the next dollar up so my 200 share 3 month call will be at $66.  

Then I wait a month and see what happens.  If GM continues to fall such that I'm still stuck with it and it looks like neither of my existing options are going to be exercised then I'll write another 200 share in the money call at 3 months so that now I have three overlapping calls out:

• A 200 share 1 month call at $65 - this is the 2 month call that I wrote a month ago but now it is 1 month.  
• A 200 share 2 month call at $66 - this is the 3 month call that I wrote a month ago but now it is 2 months.  
• A 200 share 3 month call at something less than $65.  

I own 700 shares and 600 of them are subject to call.  I don't have any naked calls and if they all get exercised I'm back to the 100 shares that I wanted.  

Then I'll usually roll the calls as they expire until they get exercised at which point I'll recalibrate.  

Using this method essentially I am the house.  If you think about the gambling analogy with a slot machine, the gambler loses small almost every time, wins big once in a while, and he loses overall.  The house wins small almost every time, loses big once in a while, and wins overall.  This is me.  I usually win small.  Once in a while I get hammered.  

[medinabuckeye1]

Yeah, I looked at buying OOM puts while selling OOM calls. That limits downside risk because my downside can never be lower than the put, but it's requiring liquidity (eating into the premium I earn on the calls) and that balance against the premium of the call means I'm limiting my upside even further, and not allowing the premium to offset taxes on the upside. And if I sell at the lower price I'm still paying taxes at the sale, which let's say I buy a put at $450 is still roughly $420/share in cap gains, so my effective sale price is actually closer to $345.
I don't want to get into naked calls, shorting stocks, or anything like that--at least as a relative newbie. I own the stock so I'd be selling OTM covered calls. And I'm basically (as far as I understand it) not really "using margin" on that. The only possible risks I see:

• Call expires ITM (or goes ITM during the duration of the contract and is called away). Now I've got the premium plus the gain but if the stock absolutely explodes my "risk" is that I haven't captured the upside above the strike price. Given that I might write a call at 790 I'm effectively betting the stock doesn't go above 790. If it does? Ok. I'm just going to have to live with leaving money on the table. I'm still ahead (even less taxes).
• Stock craters. That's not an options risk... That's a risk of holding any stock. However I don't have to ride it all the way down until the contract expires. As the stock falls, the premium on a 790 call (especially as we're getting closer to expiry) will drop massively as well. So I use some of the premium from the sale to buy out my contract. I give up some premium but I'm now free and clear of the contract so if I decide the stock is going to KEEP falling I can at least exit.

On an OTM covered call written for a 25% upside strike price, I basically only make the premium if the stock goes up 2%. I mean, on paper my stock is worth 2% more, but that's an unrealized gain so it could go down 2% an hour later. So I don't see how covered calls will have *wild* swings or dramatic risk...

You are absolutely correct.  The only risk of a covered call is that you lose the upside if it goes up but that is no different than selling it.  Either way you don't get the benefit if it suddenly doubles.  

The inverse is true with a "covered" put.  Here when I say "covered" what I mean is that you HAVE the money.  So long as you have the money there is no more risk in a put than there is in just buying the stock.  Either way if it goes broke you are out everything but not more than everything.  

The REALLY risky options are naked calls.  This is because there is no mathematical limit to how much a stock can go UP.  A stock can't go below zero so if you write a put the maximum you could possibly lose is a defined quantity.  However there is no maximum price so the risk on a naked call is theoretically infinite.  If you wrote a call on XYZ Drug Company at $50/share and DID NOT own the stock and they suddenly announced a cure for cancer with successful trials, you'd be in BIG trouble.  

As for your specific situation my advice is worth what you are paying for it but here is what I would do:
I would write a three month calls above the current trading price EVERY month.  I don't know (and I'm not asking) how much you own so I'll just make it up to fill out an example.  Lets say you own 1,000 shares of this company and you said it is trading at $633.  Now lets say that your portfolio is worth a total of $2 Million.  No sane Financial Planner would advise you to keep 30+% of your portfolio in ONE company especially if you also own other companies in that same sector (which is typical).  A typical situation might be that you portfolio consists of $633k of ABC Tech Company, $333k of DEF Tech Company, $334k of GHI Tech Company and $700k spread over 40 other stocks in random sectors from energy to banks to food.  You have several issues.  For one, you have way too much in tech.  You've got $1.3 Million or 65% of your portfolio in tech.  The second issue is you have WAY too much in ABC Tech (31.65% of your portfolio) and probably more than you should have in DEF and GHI (~16.7% of your portfolio each).  

So you should diversify which you already said is what you are trying to accomplish here.  

How risk tolerant are you and (closely related question) how quickly do you want to diversify?  
When the March contracts expire (actually the Monday after), I would write a May call.  In this example you own 1,000 shares and you *SHOULD* probably get down to around 300-400 to get it down to ~10% of your portfolio.  Thus, you should be thinking of selling about 600 shares so, from your example:

• On Monday, March 23 I would write something like the $790 May call at $56.97 on 200 shares only I'd write it as a June call.  
• On Monday, April 20 I would write a similar July call but it depends on what the stock does between now and then (I'll come back to that).  
• On Monday, May 18 I would write a similar August call but again it depends on what the stock does between now and then.  

Once you do that you'll have 600 of your shares subject to call and based on the price you quoted you'll get a little over $11k for each of these calls.  Part of your diversification can be simply buying more stocks with the $11k/mo that you get for writing these options.  

Then each month either the call that you have outstanding WILL BE exercised in which case you'll sell 200 shares which you pretty much wanted to do anyway, or the call that you have outstanding WILL NOT be exercised in which case you can just go out another three months and write another one.  

Your only real enemy is volatility.  If the stock jumps WAY up you would have been better off just keeping the stock and not selling options.  If the stock drops WAY down you would have been better off just selling and not getting into options.  

Here is the thing though.  Had you held or sold you have still had risk of a drop or rise respectively.  The overlapping calls allow you to adjust based on what happens.  If the stock climbs such that it looks like the 200 share June call is going to be exercised then write the July call (sold in April) even higher.  If the stock drops so that it looks like the 200 share June call is going to expire without being exercised then write the July call (sold in April) even lower.  

[Cincydawg]

Writing nekkid calls is ….crazee.  Buying calls is just Vegas.  

[betarhoalphadelta]

As for your specific situation my advice is worth what you are paying for it but here is what I would do:
I would write a three month calls above the current trading price EVERY month.  I don't know (and I'm not asking) how much you own so I'll just make it up to fill out an example.  Lets say you own 1,000 shares of this company and you said it is trading at $633.  Now lets say that your portfolio is worth a total of $2 Million.  No sane Financial Planner would advise you to keep 30+% of your portfolio in ONE company especially if you also own other companies in that same sector (which is typical).  A typical situation might be that you portfolio consists of $633k of ABC Tech Company, $333k of DEF Tech Company, $334k of GHI Tech Company and $700k spread over 40 other stocks in random sectors from energy to banks to food.  You have several issues.  For one, you have way too much in tech.  You've got $1.3 Million or 65% of your portfolio in tech.  The second issue is you have WAY too much in ABC Tech (31.65% of your portfolio) and probably more than you should have in DEF and GHI (~16.7% of your portfolio each). 

So you should diversify which you already said is what you are trying to accomplish here. 

How risk tolerant are you and (closely related question) how quickly do you want to diversify? 

At 47, I feel like I can take some risks. I'm far enough from retirement. I just don't want to squander the gains I've been blessed with...

And for that I need diversification. 70% of my portfolio is two highly correlated tech stocks. That have both gained due to the same reason (AI tailwind). They'll both be subject to the same downward pressure if it materializes. The problem is taxes. When you realize my portfolio has gone up an on the two names 5x and 20x compared to cost basis, it's going to be painful. 

There's nothing I can do about my employer stock. I can't [due to company policy] trade options on it, so I'm going to have to work through the stuff that's long-term and just start selling. Thankfully(?) the gain on that percentage-wise is lesser. But the position is bigger. So the taxes on that will suck. And I'm stuck with some of it that's still short-term that I can't sell until it hits 1 year. 

The non-employer stock therefore is the one that I want to milk the crap out of it for as much as I can. Ultimately I'll be happy when/that it sells, and like I said the good thing potentially about a covered call is that I can set up a scenario where I'm not only forced to sell, but that I am compensated such that it helps me stomach the tax penalty. 

  
When the March contracts expire (actually the Monday after), I would write a May call.  In this example you own 1,000 shares and you *SHOULD* probably get down to around 300-400 to get it down to ~10% of your portfolio.  Thus, you should be thinking of selling about 600 shares so, from your example:

• On Monday, March 23 I would write something like the $790 May call at $56.97 on 200 shares only I'd write it as a June call. 
• On Monday, April 20 I would write a similar July call but it depends on what the stock does between now and then (I'll come back to that). 
• On Monday, May 18 I would write a similar August call but again it depends on what the stock does between now and then. 

Once you do that you'll have 600 of your shares subject to call and based on the price you quoted you'll get a little over $11k for each of these calls.  Part of your diversification can be simply buying more stocks with the $11k/mo that you get for writing these options. 

Then each month either the call that you have outstanding WILL BE exercised in which case you'll sell 200 shares which you pretty much wanted to do anyway, or the call that you have outstanding WILL NOT be exercised in which case you can just go out another three months and write another one. 

Your only real enemy is volatility.  If the stock jumps WAY up you would have been better off just keeping the stock and not selling options.  If the stock drops WAY down you would have been better off just selling and not getting into options. 

Here is the thing though.  Had you held or sold you have still had risk of a drop or rise respectively.  The overlapping calls allow you to adjust based on what happens.  If the stock climbs such that it looks like the 200 share June call is going to be exercised then write the July call (sold in April) even higher.  If the stock drops so that it looks like the 200 share June call is going to expire without being exercised then write the July call (sold in April) even lower. 

That's good thinking. Staggering could be really smart, especially given that this is a VERY volatile stock--which is part of the reason options premiums are high. That could also allow me to be more tactical about buy-to-close actions if something is close enough to expiry and close enough to strike that I can get out profitably without actually giving up my stock... 

Ultimately I think I'm going to do what CD mentioned... Spend a few years working with a financial advisor milking him for as much knowledge as I can, and then eventually get to a point where I feel comfortable doing it myself. He should be mapping out an options strategy in the next week. I'm trying to learn as much as I can (and ask questions from all of you) so I can go into that discussion smartly. I'm already light-years ahead of where I was 2 months ago. But I've got a ways to go.