Things you must NEVER do

CategoriesOptions Trading

The u/  IhateYak9s writes:

There are no hard rules in trading but after reading one too many problem threads I have to say that you filth disgust me.
I dont care if you yolo your entire life savings on one 0DTE, terrible risk management but hey its your life and you might even get lucky. We are all gambling troglodytes here.

Where I draw the line is:



If you are not making money you must NEVER borrow money to trade. No exceptions. You weren’t making money with $100, $1000, your fucking life savings and your not going to with whoever you borrow from.

Atleast when you yolo your life savings away, you can actually crawl your ass back by eating cup noodles and asking people if they want to upsize. But fucking yourself with interest can literally be mathematically unrecoverable.

Lately I have been reading way too many shit stories of people borrowing money from family, friends, gf, credit card, student loan whatever. This is the most despicable thing you could do, you are literally sub human if you do this. You already know your a fucking loser who cant make money and deep down you know you just stole their money, countless hours of their work and lit it on fire because you had no morals or self control.



GameStop’s High Option Premiums Are Popular With Income Investors

CategoriesIssue 2023Q2, Options Trading


Barchart – 

GameStop (GS) reported surprise profits and positive free cash flow for Q4 and 2022 on March 21, including the first profits it has had in 2 years. This has pushed up GME stock over 40% and it is still at these levels, closing at $22.40 on April 7. This has led to very high option premiums that are popular with income investors.

I discussed the company’s earnings and positive free cash flow (FCF) results in my Barchart article on March 26, “GameStop’s Surprise Profits And Huge FCF Causes Unusual Options Activity.” For example, the Q4 net income was $48.2 million, compared to a net loss of $147.5 million for the prior year’s fourth quarter. In addition, I pointed out that its Q4 FCF was $326.6 million. That actually led to an increase in its cash balance, rising by 33% or $349 million during the last quarter.

Needless to say, if this keeps up the stock is going to continue to do well, especially if the cash burn stops as it did during Q4. This means that the stock is likely to stay fairly level, at least until the next earnings are released in early June.

In the last GME stock article, the short put premium trades for expiration on March 24 through to March 31 all expired worthless. That means that the trades were successful and the short-put investors kept all of the 2%+ income made in just 9 days. Moreover, going forward it makes sense to keep shorting OTM puts for income, given the high option premiums.

Shorting GME Stock Put Options For Income

For example, for the expiration period ending May 5, 28 days from today, the $20 strike price puts trade for 53 cents. That represents an immediate yield of 2.65% (i.e., $0.53/$20 put strike price).

GME – Puts – Expiring May 5 – Barchart – As of April 6, 2023

This means that an investor who secures $2,000 with their brokerage firm can then enter an order to “Sell to Open” 1 put contract at $20.00 for May 5 expiration. The account will then immediately receive $53, giving it a 2.65% yield. As long as GME stock does not fall to $20 or below on or before May 5, 2023, the investor’s return is secure.

But even if it does, the investor has a low breakeven price of $19.47 (i.e., $20-$0.53). This is 13% below today’s price of $22.40 (i.e., April 6), giving the investor a good margin of safety. If that happens, the investor’s $2,000 is exercised to purchase 100 shares of GME stock at $20.00. This could lead to an unrealized capital loss. However, this trade is very popular as there are now 239 contracts outstanding at this strike price.

Moreover, more conservative investors are shorting $18.00 strike price puts. They are trading at $0.20, providing an immediate 1.11% yield. Now the investor has less to worry about since the breakeven level is $17.80, or 20.5% below today’s price. In other words, there would have to be some really bad news for the stock in the next 28 days for that to happen. Given the company’s high levels of FCF and surprise profits, this is not very likely.

In fact, some investors may be playing both sides. They can short the puts at $20.00 and use that premium of 53 cents to purchase long puts for 20 cents. That gives some additional protection in case the stock falls significantly below $18.00. Here the investor still makes an immediate yield of 33 cents, or 1.65% compared to the $20.00 strike price. Granted, if the stock falls between $18.00 and $20.00 there is still an unrealized loss, but at least if something catastrophic happens, the investor’s downside is limited to $2.00 less 33 cents, or $1.67 per put contract.

This shows that investors are taking advantage of the high premiums in GME put options to create good income opportunities going forward.

What are an option’s “tested” and “untested” sides?

CategoriesOptions Trading

Having a position “tested” or “stressed” is trader jargon for “an assumption I made when entering the position is turning out wrong and I am losing money” or “the trade is going the wrong way at the moment”.

For example: you sell an OTM option with strike K, as the underlying S approaches (and goes beyond) K that option position is “tested” or stressed. You are fearful and might consider getting out of the position (“taking max loss”), or you might stand pat hoping for a reversal by time T (“hopefully the test is temporary and I will still make money in the end”). Thirdly you might make an adjustment to your position that involves buying back the short option at K and selling another (cheaper) one at K’ farther away; this is called “adjusting the strike” or “rolling the strike”. It involves accepting that you have lost your original bet on K but taking another bet on K’ further away (“at least I get a second chance to be right”).

It is not exactly clear to me what option position is being discussed here (did you grasp that?). It may be a call spread or strangle, where one leg or side has been losing money but the other one has not (hence the use “tested side” and “untested side” to refer to the two options that make up this trade).

This kind of directional option trading has little to do with traditional quant finance. It requires accurate prediction of how S will move.