NKLA

[Gwaihir]

Originally Posted by zodium [You must be logged in to view images. Log in or Register.]

as Gwaihir sort of gets at, viewed as independent bets, options are pretty much random noise. options make more sense when you view them as balancing tools, or side bets, that you use in conjunction with main bets. it's easiest to understand why they're random noise if you break down and interpret your bets. (obviously always crunch the numbers. the numbers are how we operationalize belief, but never forget the numbers are only as good as the information they represent.)

what am I betting on? what specific information supports my bet? can I know that? when I buy a value stock, I'm betting primarily on the future performance of executives, over time. when I buy a speculative stock with an eye to sell later, I'm betting on the future behavior of other traders, over time. "executives will pay more dividends/other traders will pay more, starting now." these are bets based on past and present information that's likely to be predictive over time, and hence profitable given disciplined investing. (anyone who incorrectly invokes "past behavior does not predict future performance" at this juncture will be summarily executed.)

if I bought options as a standalone bet, I'd be making a specific bet about one moment in time, in the future, while doing it in a manner which conflates information about company and market behavior. "this will be worth more or less than X, on this future date." what specific information supports my belief that Stock A going to be worth more or less than X dollars on exactly this date? do I have specific information the executives, or the market, will do something the days before? or even that they might? almost invariably, no. I have no information, nor could I. that makes no sense. this is a bet for rubes.

an option is a hedge, and a hedge supports a main bet. "I'll bet the market that NKLA will behave in this way over the next so-and-so-long, but just in case, since I'm not omniscient, I'll make a side bet with part of the market that it behaves this, this or this other way, to obtain a better overall profile." a good hedge is still informed by the same information as the main bet. it just expresses it differently. it's a bit like the difference between a point estimate and a confidence/credible interval, the interval goes around the point estimate. it doesn't make sense independently. options are like that too.

Correct, for "buying" options. The "advantage" in trading an option always goes to the seller of the option, since "time remaining until contract expiration" always carries a value that isn't commenstruate with the existing price schema.

This is why i suggest selling a below-market put, in addition to buying 100 shares and selling an above-market call that indicates your respectable "exit-point.

Investing in anything, without clearly setting criteria in which youd be willing to walk away happily is a fool's errand. How do you ever realize profits, if you have no exit point?

Anyhow, by hedging in this manner, only a major price pullback can thwart profitability, whereas minor pullbacks, flat pricing, and upward surges all net profitable, albeit you're limiting your exponential profit potential. Plus if its a dividend paying stock, youll still get any dividends dispersed on the 100 shares of underlying stock during the tenure of awaiting expiration on the entirety of the hedge. Furthermore, in the event of a major price 0ullback, the losses are mitigated in comparison to an unhedged buy with lambo expectations of mooning where you still won't sell, because now youre shooting for the moon's moon.

M-O-O-N, that spells greed.

BTW, DFEN is currently a far more lucrative etf for a buy+ put/call hedge, with a 43.5% max gain and profitability coverage on a 35% pullback for a 7-month haul with Boeing, Raytheon, Northropp Gruman et al not having recovered from the march pullback, and the threat of war with China looming on the horizon. We're far less likely to see the US Gov refuse a handout to the defense industry in the event of fiscal insolvency than you are a Tesla knockoff when institutional money is already backing its pet EV manufacturer Tesla. NIO is highly risky too, for that matter.

The natural logarithm (1.435)/7.5months indicates the underlying etf would need to outpace an exponential gain rate of %4.82/month to return more than 8$ put strike, and 16$ call strike set to april on an etf trading circa 11.50/share now. So, you're looking at a total investment of $1950 for an initial entry, with a max return of 2798 as it approaches and exceeds 16$/share in april 2021