Board 8 > Stock Topic 13

(+) Yeah! (+)

https://www.tiktok.com/@ceowatchlist/video/6911499902908501254

So I have a question

Let's say you have 1000 shares of a company, then you buy 500 more shares and sell those 500, in this case we'll say for a gain, without touching the first 1000 shares. Does your average on the first 1000 shares go down or is it unaffected?

I thought in this scenario, it would cause your average to go down, but now I think, using TD Ameritrade's platform at least, your average is the average of whatever shares you still currently have, as you've already made money on the other shares and the trade is closed, which actually makes a lot of sense.

Basically, I've been making 500 to a grand or so every other day just flipping extra AVCT warrants while I keep a baseline of 50,000ish. I've noticed my account is continuing to get higher so I know I'm making money, but the day after selling (why it takes this long to register I don't know) my average will go back up. I think it's just Ameritrade making this more confusing than it needs to be with the random timing of changing your average. Makes total sense that your average wouldn't include closed positions now that I think about it. Plus I can still use the profits from these swing trades to buy even more and average down to hold long term.

E: oh yeah and if you remember I did fuck tax lots and wash sale rule stuff previously but now I've got that shit all ironed out and have been selling LIFO. so yeah I am making money unlike when I was FIFO selling old shares I bought high

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Once you've sold shares it should get taken out of the average cost basis of what's left. Unless you fall within the wash sale rule, then they do some weird magic to raise the cost basis of what's left so that what's been sold doesn't realize a loss.

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goddammit so I was right originally, and in the scenario I provided your average would then be lower on the 1000 shares? because that's what happened to me when I sold yesterday - average went from like 60 cents to 52 and I was about break even when the high was 51 cents. then today it adjusted to 58 cents and I was super frustrated since I thought I ironed out the tax lot stuff.

You know what, after rechecking my cost basis, I did have some trades wash sale rule'd again. I think it's from selling those FIFO trades for a loss when I thought I was selling for a gain and didn't understand tax lots, and then buying more shares (within 31 days). That said...the wash sale rule charges are like 20 bucks, nothing substantial and I know I sold a trade today for like a $700 gain. So if you're right, really confused how my average got so high again.

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but if what you're saying is true, I should just be able to keep swing trading gains to bring my average down, as long as I don't keep getting wash sale rule'd

really wish there was a freaking warning before you sell saying THIS WILL BE A LOSS BECAUSE OF THE WASH SALE RULE or some shit. I don't get it

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I don't think I understand what's going on. What's your realized gain/loss? Zero?

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For AVCTW, 2 grand gain realized, currently 5 grand loss unrealized, which fluctuates like 4 thousand per day because I have so many warrants lol. It was just -1.5k for a few hours yesterday

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I wouldn't worry about it. It sucks that you'll need to pay tax on the gain when the overall position is down, but that happens sometimes. Sometimes it works the other way.

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I'm not worried about that. I have a lot of cash available now (I sold my commons I bought high for a gain finally) and with one spike, I could hit break even on the warrants too and get out if I wanted. But I'm too deep in this company for the long term. And also incredibly paranoid about selling a significant portion of shares right before they drop news again, as it happened last time!

It's more just that a low average feels better to hold long term. If I was just swing trading it, I wouldn't care, but I'm holding until we get another news drop/honestly hoping it drops to accumulate more for cheap since I sold my commons. So a low average just feels better when you don't know how long you'll be holding for.

I appreciate your help though. I'll call my broker next week so I can at least understand what's going on with my average for future trades.

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Red sox, I've been playing with my cost basis for the last hour or so and I can 100% confirm that your average cost for a stock is on the shares you currently own, and it does not take into account any other trades, losses or gains, you may have made with the stock previously.

Before funds settle, Ameritrade (or Gainskeeper anyway) let's you assign the shares you've sold to specific buy orders. Very cool. Basically, when I assigned my AVCTW sell orders to shares I bought really low, my realized gains go up, as I've obviously made more money, but so does my cost basis, as the remaining shares I now own I've bought higher.

So yeah, in the scenario I presented, if you buy 1000 shares of a company, then buy and sell 500 more, the cost basis on the 1000 original shares would be unchanged after funds have settled for the 500 additional shares. Doesn't matter if you sold those additional 500 for a huge gain or loss.

Maybe you already knew this and my wording was weird last post.

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Also wait, that is assuming that you made those purchases in two chunks, 1000 and 500 share buy orders, and used the appropriate tax lot (like LIFO) to sell only those additional 500, leaving the original 1000 untouched. If you're using the traditional FIFO then your average actually would change.

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How do I buy bitcoin

jk too insane for me

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I was thinking 33k might be the top the other day but I don't know now

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When I started the investing game a few months ago Bitcoin was at $14k and I was 50/50 on starting my investing with Crypto and the Stock market, and chose the stock market since I know more about how companies work than crypto, and learning about the stock market would probably be more worthwhile in the long run.....

RIP FOMO etc

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I bought a few bitcoin when it went sub 10k last year, which is the only non business asset I have after I left the stock market.

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I have a little bit of Bitcoin. Should have bought more!

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https://youtu.be/M8fLtmP7vUQ

There's another topic here now about bitcoin that I posted this in, but I'll leave this here as well.

I need to spend two or so days just learning all I can about crypto soon. As much as I want to wait for a huge pullback on bitcoin, I wouldn't be surprised if that never comes. The continued trend of more and more young people turning to investing to make money is a huge catalyst here and the demand for crypto is getting off the charts.

Think I might throw my 10k I have in my Ameritrade account but not invested in anything at GBTC soon.

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Most of my 9:30 am ideas were good but the only one I paper hands'd

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ya go my ethereum

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I saw EVRI go down 3.5% so I got in. Its currently down 7% but it will go up. This is a great price for it if anyone wants in.

Quite a bloodbath in the market today. AU and ZM are carrying me.

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Well i dont know where this market is going outside of it going down, i guess

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I bought back in on FUBO. The $50+ it was going for a week ago was outrageous but it's worth it at this price

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i have 3300 in cash and i have no clue what to do with it

2 hours ago i knew what to do with it but now that my suspicions that the market would be going down was right i dont know what to do what do you think Lopen

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i wish i sold apple at like 135 im getting screwed big time here :(

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Buy 100 shares of FUBO sell a call for it that's more expensive than its current price that expires at the end of the week

Enjoy your free money

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I dont really understand how selling covered calls works, im too afraid to do it and to learn how to do it

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GBTC was a good buy this morning. ETCG would've been even better though!

dammit time to throw more money at this account

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I haven't kept up with NKLA but I guess they backed out of the deal to make electric garbage trucks because they can't do it. the best.

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You buy FUBO at $25 right now

You sell the right for someone to buy your shares by the end of the week at for $26 which gains you about $150.

If it drops more you keep your $150 and shares as no one will want to buy it at $26. If it goes up, well you still make $100 as well as the $150 contract fee. Of course it could go up to like $35 and you lose a lot of potential gains but a win is a win.

I guess the only real risk is if it keeps dropping a LOT and you don't have the willpower to see it through. I think we're really close to the bottom here though.

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Well it does happen to be in a free fall right now !!

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It's true! It's scary seeing the -$700 even if I've made half of that back by selling profitable call contracts

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I have 100 shares in apple and even I won't sell covered calls here cuz I don't know what I'm doing


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Oh good topic, I was trying to understand covered calls this weekend

Does 1 covered call = 100 shares?

My broker lists this as a multi leg option - I need to buy 100 shares and then can sell the call option. If I just own the 100 shares to begin with, am I just able to sell the covered call directly with the shares I have?

Do you expect the call to be exercised immediately upon hitting the strike price, or does it usually not happen until the price is a bit higher to be more "in the money"? I see that a lot of calls being sold are at or below the current price....

If I'm understanding the theory right, it seems that the primary benefit is when I'm just holding something like AMD for the long term, but don't think it's going to rise in the next few weeks, I can sell a call for a few dollars more than current price and expect the shares not to sell and to keep the premium, and worst case my shares just sell at a gain from the current price, and I harvest the gain I've already made holding AMD till now anyways.

I'd need to own 100 shares though which is way more than I have. I guess I need to be a big time investor to enjoy these kinds of things.

I suppose plays to capitalize on things like FUBO could work too... if you are right that this is near the bottom. I'm assuming you think that because this is the price it was at before it's December run?

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So here's what selling a covered call means

• Someone can buy your shares at the price you pick at any time before the call expires
• Generally this will only happen if the stock price goes above that number. Why would someone buy your shares for $28 when you can buy them off the market for less.

So if you sell the call for a price that's higher than your cost basis this poses no real risk to you unless you don't want to sell for a small profit because your stock might moon or you want the dividend or lower tax rates or whatever.

Me I'm completely fine with getting "only" 10% return on my 200 FUBO shares by the end of the week. And if I don't those contracts were free and I can sell them again next week.

Now if the stock price goes so low that I can't sell calls that still net me a profit there becomes a form of risk but I feel more pressure on my $28 calls being cashed out than I do

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Dawg did you write that in 4 seconds

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CoolCly posted...

If I just own the 100 shares to begin with, am I just able to sell the covered call directly with the shares I have?

Yes

CoolCly posted...

I'm assuming you think that because this is the price it was at before it's December run?

Pretty much. It moved up above the 20s on no news just hype, and down and no news. Fair value right now is in the $20 to $30 range imo. It's highly volatile because of its relatively low market cap. I guess you could be afraid they might do another offering but eh. Stock has a lot of buy ratings from analysts and a growing subscriber base/sports betting being built into the platform. It's a growth stock but it's a growth stock on the bottom.

CoolCly posted...

If I'm understanding the theory right, it seems that the primary benefit is when I'm just holding something like AMD for the long term, but don't think it's going to rise in the next few weeks, I can sell a call for a few dollars more than current price and expect the shares not to sell and to keep the premium, and worst case my shares just sell at a gain from the current price, and I harvest the gain I've already made holding AMD till now anyways.

That's one way. Or you can do it with a highly volatile stock like this one, only go slightly out of the money, and just get a quick short term gain because the contracts are expensive. Heck if you have minimal faith in the stock you can just sell the contract at very close to the market value and while you won't make any money from the stock you pocket the more expensive contract. I ideally want to hold it and think it's going to rebound fairly quickly so I'm shooting a bit higher than the current price in hopes that it expires out of the money so I get free contracts.

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CoolCly posted...

Do you expect the call to be exercised immediately upon hitting the strike price, or does it usually not happen until the price is a bit higher to be more "in the money"? I see that a lot of calls being sold are at or below the current price....

I wouldn't expect immediately. I've had sold calls/puts not be exercised until day of expiry despite being "in the money" well before then. I can't really tell you a hard and fast rule just that I wouldn't generally expect immediately.

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It's here!

It's here!!!

THE DIP

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Lopen posted...

I wouldn't expect immediately. I've had sold calls/puts not be exercised until day of expiry despite being "in the money" well before then. I can't really tell you a hard and fast rule just that I wouldn't generally expect immediately.

Thanks! This is good to know. I wouldn't expect a guarantee since you can't really be sure what everyone would do when choice is involved, since some people just might see it's in the money whatsoever and exercise it, while some wouldn't, but it's good to know that's not quite the general practice.

My broker says that if your option is in the money at expiry it will just go ahead and exercise it for you, so I'm assuming that most if not all brokers do the same thing. So if it's in the money at expiry I would expect it to be exercised. But that's very different from expecting it to be exercised any time it gets above the strike price. After all, even if I don't expect AMD to go to $95 by January 15th, and it's not there the day it expires, there is a much more decent chance it spikes there temporarily and then comes back down. If it's not there for a decent period, especially if it's not above it by a decent margin, then I think I wouldn't expect the option to be exercised. This means the likelihood your stock is actually taken lower, as an even higher and sustained increase in the stock would need to happen.

This makes selling covered calls very appealing, I think.

As usual, thanks for your insight.

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CoolCly posted...

Thanks! This is good to know. I wouldn't expect a guarantee since you can't really be sure what everyone would do when choice is involved, since some people just might see it's in the money whatsoever and exercise it, while some wouldn't, but it's good to know that's not quite the general practice.

My broker says that if your option is in the money at expiry it will just go ahead and exercise it for you, so I'm assuming that most if not all brokers do the same thing. So if it's in the money at expiry I would expect it to be exercised. But that's very different from expecting it to be exercised any time it gets above the strike price. After all, even if I don't expect AMD to go to $95 by January 15th, and it's not there the day it expires, there is a much more decent chance it spikes there temporarily and then comes back down. If it's not there for a decent period, especially if it's not above it by a decent margin, then I think I wouldn't expect the option to be exercised. This means the likelihood your stock is actually taken lower, as an even higher and sustained increase in the stock would need to happen.

This makes selling covered calls very appealing, I think.

As usual, thanks for your insight.

The reason it's rare for someone to exercise it early is that if they want to close the position before expiry, they can just sell the call rather than exercising it. Until expiry, the market price of the call will usually be higher than the exercise value because some people may think there is still some time value to it (i.e. it could become more valuable). On the other hand, if you don't think the call will rise farther, you can exercise it, so no one will think the call is worth less than the exercise value.

I think where it does get exercised early, usually that's when the market price of the call and the exercise value are the same or almost the same - i.e. when the options market feels there is basically no remaining time value to the call and all the value is in the exercise value.

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General question - any other Canadians following this topic doing investing? I have tax planning thoughts but it's wouldn't mean much with a bunch of Americans.

Everything StarTheMachine was saying earlier is nonsense to me after all. LIFO? Da fuq?

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Yeah. I think the odds of you holding your sold contract that was in the money before contract expiration through expiration day would be exceedingly low because of that reason

Now the other cool thing is if you sell a call/put that moves a ton and it hasn't been exercised you can always buy it back to make the difference, and then you can sell it again too using your same shares as collateral.

For instance if I dunno FUBO ends Thursday at $27 I may buy the contract back if I've made money on it (time decay will remove a lot of the price on the contract even if the price moves up), just to remove the risk of having my shares taken for minimum value on Friday. I can then sell a higher priced call that expires Friday to get some of my money back. There are a lot of things you can do. The only thing I would say with this strategy is to never buy your contract back if it's at a higher price than you sold it for. Just always keep in mind that if it exercises you made money-- don't get greedy and buy your contract back at a $100 loss because it surged up and it wasn't exercised yet.

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red sox 777 posted...

The reason it's rare for someone to exercise it early is that if they want to close the position before expiry, they can just sell the call rather than exercising it. Until expiry, the market price of the call will usually be higher than the exercise value because some people may think there is still some time value to it (i.e. it could become more valuable). On the other hand, if you don't think the call will rise farther, you can exercise it, so no one will think the call is worth less than the exercise value.

I think where it does get exercised early, usually that's when the market price of the call and the exercise value are the same or almost the same - i.e. when the options market feels there is basically no remaining time value to the call and all the value is in the exercise value.

Oh this makes sense - I'm guessing this is why calls below current price are available to be bought. These aren't holders of the shares selling new calls, as they would be selling calls at the current or higher price, these are previously sold calls that are just being resold with the current value of the share being taken into account?

I've noticed this with warrants. They just slide up and down in tandem with the associated stock price. Do you guys consider warrants much different than options? They are technically different as they cause the company to issue new shares rather than buying a share from an existing shareholder but to a retail investor that doesn't really mean much different I would think.

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Warrants are basically just dumbed down options as I understand it, as the Strike and Expiry are priced in. Robinhood doesn't support them so I don't really care to look into if there's any nuance beyond that.

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Lopen posted...

Yeah. I think the odds of you holding your sold contract that was in the money before contract expiration through expiration day would be exceedingly low because of that reason

Now the other cool thing is if you sell a call/put that moves a ton and it hasn't been exercised you can always buy it back to make the difference, and then you can sell it again too using your same shares as collateral.

For instance if I dunno FUBO ends Thursday at $27 I may buy the contract back if I've made money on it (time decay will remove a lot of the price on the contract even if the price moves up), just to remove the risk of having my shares taken for minimum value on Friday. I can then sell a higher priced call that expires Friday to get some of my money back. There are a lot of things you can do. The only thing I would say with this strategy is to never buy your contract back if it's at a higher price than you sold it for. Just always keep in mind that if it exercises you made money-- don't get greedy and buy your contract back at a $100 loss because it surged up and it wasn't exercised yet.

Ohhhmyyygooood

so basically you are saying - sell a call for a week from now for $2 per share

then that day before it expires that same option is selling for $0.40 so you can just buy it to guarantee yourself from losing the shares. Reducing your premium a bit but eliminating minor risk for losing your shares if you are concerned about it

And then sell another longer term covered call.

This rabbit hole gets deeper the farther you go, doesn't it


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Yup. You'd make $160 in that case and have no risk of actually losing your shares by default. You could then sell a call for a bit over a week out (or just tomorrow, though there won't be a lot of time value for that contract) at a higher strike that you again don't expect the stock to reach to get easy money.

The problem is when your stock moons and you don't get to reap or your stock plummets and you no longer profit by selling calls at a profit and you just have to sit on your stock like the old days. But the former case you're still profiting and the latter if you properly valued your stock you should be okay sitting on it for a while. You could also sell calls that would have you selling the stock at a loss with the cost of the contract but I think that's probably the path to losing money with this. You can always wait till the stock goes up and sell your contracts again then. The only reason I'm selling FUBO calls now is I'm using the proceeds to buy more FUBO while it's still down-- if you have no immediate use for the money waiting might be prudent.

Now if you really want to make yourself "moon proof" you could also buy a really long expiry call that's slightly out of the money. For instance I could buy a $30 call on FUBO that expires at EOY with 1000 dollars right now-- I can make that in less than a month of selling calls on the two hundred shares I have. That means if my $28 and $29 weekly FUBO calls get cashed in due to the stock going absolutely nuts, I'll still have 100 shares in my pocket that I can buy at a reasonable price.

And if it doesn't go absolutely nuts, I can always just buy the shares back. No need for a contract if my shares get bought at $29 when the price is $29.25. Just buy the shares back with the $2900 I got form my contract cashing out.

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Hmm...

In regards to stocks that have gone down from your purchase price.... if I feel my prior valuation was right, I can wait for it to go back up, like you say. But if I feel like my valuation was wrong, and the new low price is just the new normal for this stock and there's not much hope of recovering my loss....That would normally be the time I just.... sell at a loss.

But covered calls might be the way to recover some or even all of that loss. I could sell at a higher strike price than the current price, and even if it's exercised it would have been better than just exiting at the price I thought it would stay. And if it doesn't get exercised I can just keep selling till break even on the stock at least.

I think I might be in love with covered calls????

That would depend on there being a market of people buying calls at a decent premium though, which might not be the case.

That moon proof strategy is interesting... I think I need to start writing these option strategies down so I can refer to them when I actually might want to use them....and so I don't mess them up.

Do all options go in 100 share clumps?

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Welcome to covered calls. Have fun

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As I understand it they're all 100 share clumps unless you had a split take place while the option was held.

But yeah I'm fairly new to doing this too I'm just explaining things I've thought of/read as I go. You'll have to feel out what works best for you.

But yeah you need to find the right stock. Needs to be one you trust and one where the options go at a high premium. Also needs to be cheap enough where you can plausibly buy hundreds of shares of the stock. For me that stock is FUBO for now (I'm doing it on TRVN as well but the premium is relatively much lower), but I've got a few others in mind if FUBO stabilizes or tanks. I think this strategy is where diversifying will really pay off, but I can't resist going harder on FUBO than the other ones I'm looking at at the moment (FSR looks tasty)

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