Selling Put Options

[prawn_86]

Would appreciate advice from those members experienced in options (Wayne, Sir Osis etc)

Suppose i had X amount of cash that i was waiting for a stock to fall to a certain price (Y). According to my reading i could in theory sell a put on that stock and if it gets to price Y i have to buy X dollars worth, if it doesn't i make a premium on it. Since i already have the cash and am waiting for a price anyway, i might as well make a premium on it right?

1. Is the above correct
2. Where do i get a list of Aus stocks that currently have options written over them?
3. What broker is the best for a small time trader like myself to trade options?
4. What else should i be aware of?

Thanks

 

[sinner]

Would appreciate advice from those members experienced in options (Wayne, Sir Osis etc)

Suppose i had X amount of cash that i was waiting for a stock to fall to a certain price (Y). According to my reading i could in theory sell a put on that stock and if it gets to price Y i have to buy X dollars worth, if it doesn't i make a premium on it. Since i already have the cash and am waiting for a price anyway, i might as well make a premium on it right?

1. Is the above correct
2. Where do i get a list of Aus stocks that currently have options written over them?
3. What broker is the best for a small time trader like myself to trade options?
4. What else should i be aware of?

Thanks

I guess I am not the expert you are looking for, but I did suggest this exact trading strategy to robusta in his "Leveraged fundamentals" thread.

1. Yes
2. That isn't a very long list, you can assume it's something like the ASX30 + options on the cash XJO.
3. I would go with Interactive Brokers (to keep transaction costs as low as possible) and transfer the holdings to your regular broker if you get assigned.
4. Option greeks. Especially vega in the case of selling equity puts.

 

[cutz]

Would appreciate advice from those members experienced in options (Wayne, Sir Osis etc)

Suppose i had X amount of cash that i was waiting for a stock to fall to a certain price (Y). According to my reading i could in theory sell a put on that stock and if it gets to price Y i have to buy X dollars worth, if it doesn't i make a premium on it. Since i already have the cash and am waiting for a price anyway, i might as well make a premium on it right?

1. Is the above correct
2. Where do i get a list of Aus stocks that currently have options written over them?
3. What broker is the best for a small time trader like myself to trade options?
4. What else should i be aware of?

Thanks

1. Yeah something like that.
2. The Fin Review has a handy daily options section.
3. Who are you with ATM ? There could be pros and cons which need to be weighed up.
4. Assignment brokerage if using an aussie retail broker,
Wide spreads on thinly traded series, try to avoid these.

 

[wayneL]

4/ For you to be assigned the shares the option buyer must exercise. Buyer won't do so unless there is a financial benefit, so it doesn't mean you will be assigned just because the strike price is touched.

Assignment is unlikely unless:

a/ Option is 'in the money' at expiry, or

b/ before expiry if the cost of carrying the shares (essentially interest forgone on the cash) is greater than the remaining extrinsic value.

For instance if the stock price hits the strike price some time before expiry, but then rises above strike price again before expiry, and extrinsic value always remained above cost of carry, you would unlikely be assigned.

IOW it doesn't act like a buy stop.