Hans’ Options WhatsApp Groups’ First Steps

You joined one or both of Hans’ WhatsApp options groups. In order to get the maximum benefit out of being a group member and in order to be a contributing member, please complete the following steps within a month of joining. We don’t give each other investment advice. We only share our opinions.

For members of Hans’ Beginner Option Selling Circle

  • Know this by heart:

  • Buy a call = right to buy        Sell a call = obligation to sell

  • Buy a put = right to sell         Sell a put = obligation to buy

  • When you sell an option, the transaction is called sell to open. As soon as you sell the option, you receive the cash for the option into your account. Simultaneously, you are receiving an obligation (to either have to sell or buy a particular stock at a particular price by a particular date) and that obligation shows up in the form of an option that carries a negative value, since you sold that option. You “owe” the option. Your account value has not changed yet, since you received say $500 in cash for selling the option while at the same time you “received” a “negative option” of a current value of $500. So these two amounts offset each other. Your account will have declined by $10 dollars or so after the transaction due to transaction costs.

  • Selling options is like being an insurance company. If an insurance company insures houses against the peril of an earthquakes primarily in the Bay Area and then San Francisco is hit by a huge earthquake, the insurance company’s assets will not suffice to cover all the claims by policy holders and it will be bankrupt. The same thing can happen to the option seller. The option seller acts like an insurance company in that he insures investors against the drop of a stock (selling puts) or she allows a speculator to apply leverage with a call option (selling a call). Your overarching objective in this group is to not let your account lose significant value because you did not understand what you were doing and selling too many options was simply too tempting.

  • Read this article about an option seller who ran a $120 million hedge fund to a -$20m balance.  

    https://finance.yahoo.com/news/another-lesson-position-sizing-volpocalypse-155028409.html

  • Here is a video about it if you prefer:

    https://www.youtube.com/watch?v=oclptYCVRL8&t=574s

    If you are pressed for time, start around minute 8.  If you are serious about honing your skills as an option seller, make sure to take your time, read through the article and watch the video in its entirety.

  • Open a brokerage account, apply for margin trading and for option level 3. IRAs work as well, but a non-retirement account allows for a wider range of options selling strategies. Reminder: you are taking full responsibility for all of your trades. Sorry for being repetitive here, but I had issues with the SEC previously by dispensing non-solicited, non-paid investment advice.

  • If you are motivated to learn more quickly, you might want to consider joining the Hans’ Theta Wheel Warriors group. Also, Tom Sosnoff, Tasty Trades, has many educational videos, interviews, etc. that are centered around option selling. Mr. Google will help you. He is also launching a new endeavor: lossdog.com           

Intermediate Options Selling