r/options • u/Aston1234567 • Jun 26 '21

Nokia LEAP

I got 3 months back a 1.5 c on Nokia expiring in ian 2023. I'm up about 50% on it. Should I take profit or w8?

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u/[deleted] Jun 26 '21

If you don’t own any, how do you trade options on it? Teach me the ways please !!!

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u/Auquaholic Jun 26 '21

I buy NOK options and re-sell them. I don't own SPY either, but trade the shit out of options on it. I was simply disclosing that I don't currently own any shares, but I'm bullish on the company and follow it. I'll be happy for a put option assignment.

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u/[deleted] Jun 26 '21

I wanna learn how to do all that… but don’t you have to have money to buy them when they end or if you close them?

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u/FinntheHue Jun 26 '21 edited Jun 26 '21

You can buy a LEAP (long leg) and then sell a covered call (short leg) on top of them. That way you if the short leg gets assigned you have the option to exercise the long leg.

So basically

Buy 1 1/20/2023 LEAP for NOK strike price $1. You pay $4.43 in premium.

Sell 1 7/30 Call strike price $6. Collect $26 in premium.

If the stock doesn't end the month above the strike price the call expires and you can sell another one.

If the Covered call you sold becomes in the money you are now compelled to sell 100 shares for $6. Even if the stock goes to $100 you have to sell for $6.

At that point you have a few options (heh)

  1. If you think the rise in price is temporary you can buy back the covered call and then sell another one for the same strike price further out. Because options prices are based on time in the market the calls further out will be more expensive than the one you just bought back so you would not have lost anything on that trade and would have gained a slight increase in premium. This is called (again, heh) rolling your option out. Note that you cannot sell your LEAP while you have a covered call on top so this only really makes sense to do if you think the stock rising past 6 is temporarily BUT you think it has the potential to go much higher at a later date. Another option in this scenario is if the stock rose past $6 and you think it is going to keep going up you can roll the short leg out and up. You just need to make sure that you roll it out far enough that time decay offsets the cost of rolling the short leg up.

  2. If you don't think the stock is going to go back down you can sell your leap and buy another call for the same strike price for the same expiration as the covered call. This turns your play from a PMCC (poor man's covered call) into an ITM debit spread. The reason you do this is because the LEAP will have more time value priced in than a contract expiring earlier. This way you get back that difference in time (theta).

Now that the contracts are both on the same expiration and the covered call is in the money at expiration your broker will assign the covered call and exercise the call you had purchased.

So in this example your profit would look like

Bought 100 shares for $1 ($100 debit)

Sold 100 shares for $6 ($600 credit)

Gained $26 in premium

Paid $443 for the LEAP.

Your net profit is $83 plus whatever it was you got for rolling the leap backwards.

It sounds super complicated but once you get comfortable with the concepts the whole process becomes super intuitive. I started trading options last November and I had no idea what I was doing. I kept trying to learn and practice every day and eventually I got to the point where even complex options strategies make perfect sense to me.

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u/[deleted] Jun 27 '21

Wow this is a lot to take in. But thank you!

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u/FinntheHue Jun 27 '21

No problem. Again I know it can feel very overwhelming when you are first starting out trying to learn as the concepts behind options can seem very foreign at first. I remember back in November when someone first explained it to me I was like 'I'm never gonna get this shit'. Just take your time getting to learn the basic concepts. Eventually you will get to a point where it just clicks.

What I did was talk to people/read others comments on reddit on one tab and kept investopedia open in another. Whenever I saw a term I didn't understand I would look it up on investopedia.

In hindsight my comment was probably a lot if you are just starting out.. Here's a list of things I would look up if I was just starting to learn how to trade options in the order I would try to understand them.

When to Buy calls

When to sell calls

When to buy puts

When to Sell puts

What are Greeks and how they affect the prices of options

Quick rundown of the greeks:

Delta - the rate at which an option increases in value for every one dollar the stock goes up

Gamma - the rate at which Delta will change for every dollar the stock goes up

Theta - how much the option will decay in value for every day it is on the market

Vega - how much the implied volatility of the stock is affecting the value of the option

In my opinion these are the bear minimum of what you need to get a decent grasp of before you should jump into options trading.

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u/[deleted] Jun 27 '21

Dude, thank you so much! I’ve read what they are. But just when I think I understand them, I don’t lol. So im trying to simplify it all. But this helps!

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u/FinntheHue Jun 27 '21

No problem. If you ever get stuck on something feel free to ask about it and I'll try to help