I sold a GME call option with a strike price of $320 and expiration in July today for $200. A pump and dump by novices is easy money if you know how to play it. Everyone knows this is going to crash, the question is when?
[0, as posted by colllectorof] https://lbry.tv/@rossmanngroup:a/why-mainstream-media-s-slan...
Hence my calling it a pump and dump... They are pumping the stock up with highly positive videos like the one you posted and comments on WSB to get the price higher faster so they can sell and make a max profit. But for this to happen, they are going to need a buyer who buys at the very top.
Who is that buyer going to be? No savvy investor will go near buying a pump and dump with a ten foot pole. Sadly, it will be the newbies on WSB and the newbies watching this Rossmann video who buy at the top and lose everything as it plummets down.
You might say, "Well I am not going to be that newbie"... But only a very few will sell at the top... Maybe 1-5%. A few more will make solid returns. But all that profit for those guys on top will come from gullible retail investors. That is why MSM is calling BS.
But, the premiums can be pretty juicy.
Looking at the 29Jan 320 Call options, if you were good, and called today’s top. Then you could’ve wrote the call at 145. Then held it for 90 mins, when it bottomed out at 89. Netting you a cool $56 per contract.
If you wrote 1 contract on this play, then 56 x 1 x 100 = $5600.
So, $5600 of net profit in 90 minutes. If you’re lucky. It’s best to have a large war chest to play this strategy.
But, if you’re unlucky, then a short squeeze can even happen during normal trading hours, and it would probably wipe you out.
You can call the wrong top, and the spreads are so wide, that the loss is heavier to exit the position.
And if you ran this strategy yesterday, at a lower price point, and held it overnight, then you would’ve been wiped out this morning, when the stock spiked in overnight off-market trading. So it’s best to keep this strategy to a daytrade.
I don’t recommend this strategy to anyone. The odds of you consistently calling the top, correctly, all the time, is very low.
And the crazy phenomenon going on right now, is that the retail traders, are somewhat collectively operating like a hive mind. Whether they can really succeed to achieve their objective of hitting $1000/share, remains to be seen. But, I’m not going to challenge this one, at this time.
On the other hand, if I am right that this is about the peak, then I get $20,000.
I could either close my position, or I could potentially buy the same call option strike with a shorter expiration for cheaper... Most likely the run up on GME will be over by then. If not, I could just buy another call option with a further strike on top of it.
Perhaps my strategy should be selling call options dated for 79 days from now with a strike of 320 for $190... Then buy call options for when I think this thing will end... Say 9 days out with the same strike for $152. If things go crazy high, then I can use my buy call option to cover the sell call option. If it doesn't, then my profit is $192-152 = $40.
My theory is the stock has run insanely high, and even Elon Musk has made comments that are priced in. At this point, WSB users may have all their money they want in this play invested... Who else comes in to sustain the current price or drive it higher? What if GME execs decide to sell some shares to raise funds? Or if the SEC asks them to to stop the short squeeze? The stock almost reached the WSB pie in the sky goal of $1000... How many people are going to make sure they aren't the last fool in the stock holding the bag?
But if I am really wrong, and the stock went to $5000 on a short squeeze, that would hurt. $5000-320= 4,680 x 100= $468,000.
I probably should buy a shorter run buy side call option to cover my risk. $20,000 with high probability outcome vs $468,000 with a low probability outcome...
Who exactly sells call options anyways? Someone has to be selling these naked in order to provide the volume that is out there, right? Probably people doing it behind an LLC shield so they can't take unlimited losses and will leave their broker ("too big to fail") holding the bag?
Or did you get margin called?
GME shot up to 452, then 90 minutes later, it fell to 126.
But, that was today’s scary high. Then, it fell to the depths of 126, just 90 minutes later. Crazy.
I think it was Ben Graham who said the markets can remain irrational longer than you can remain solvent.
Opening a spread would make you a ton of money for sure, but seems unlikely one would be sold.
Perhaps you mean he could buy a higher priced call.
Can you expand on this? Why would they be on the line for $20k+ (or anything) after selling the option?
Not just when the option expires. You can be assigned anytime after you sell an option.
Correct me if wrong, but my understanding with Robinhood is that you Sell to Close (by default anyway), which just goes back into the market. No further obligation?
If you sell an option, you Sell to Open. If you want to buy it back (at a profit/loss and you're not assigned), you Buy to Close which goes back into the market and closes your position. If you are assigned (i.e. the buyer of your option exercises his right to buy 100 shares at the strike price), you have no option other than to buy those shares at market price if you don't have any and deliver it to the option buyer.
Caveat vendor.
We know well that random people on the Internet aren't reliable. For those who respond, why are you taking it at face value?
You got lucky - you have nothing to brag about. Your actions are 100x worse than anything i've seen in WSB.
I mentioned that quote from someone that thought in the same lines as the OP, had more money and was a professional in the area, and still lost his shirt - twice.