In their recent episode of the VALUE: After Hours Podcast, Taylor, Mitchell, Brewster, and Carlisle discussed Options Trading Strategies. Here’s an excerpt from the episode:
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Options Trading Strategies
Tobias: If there’s a lot of vol in the stock– I like writing puts when there’s something that I know really well and everything– there’s some little crisis, something falls over, and then you write them get a little bit cheaper than you would otherwise get them maybe they’re not exactly where you want to buy them. I like calls or leaps, where the market hasn’t done anything for a long time, and it’s in a very good stock that keeps on– the underlying business is compounding away. It’s just that it got expensive 10 years ago, and it’s just done nothing. So, there’s no vol in this [crosstalk] at all. It’s completely quiet. Nobody wants to buy the options. You buy the LEAPs for two years that where it’s getting to that point where it’s getting silly cheap, and then you get the big moves, I found from those.
Bill: All right, so, let me throw this one at you. The homie Bluth Capital of– We went to dinner a couple nights ago, and he threw this one out. Ford, super low implied volatility working on an EV that could be pretty damn impressive. What happens if Ford turns into an EV stock and you own some low vol calls?
Tobias: That might work. It might work.
Bill: [crosstalk] I don’t know. That’s one of those scenarios. He was just like, “I’m not saying that it’s this slam dunk trade,” but it’s one of those that your stock starts going up and your volume could go up too. That’s a pretty nice combination in options world.
Tobias: Yeah.
Bill: I own none. I will own none. I’m just saying.
Tobias: You’re not tempted to play AMC? It’s that all the vols in there right now. I was joking [crosstalk]
Bill: I got my face ripped off in– Well, I got ripped off in Tesla. That was the highest vol that I ever–
Tobias: Which one?
Bill: Just last year, or [crosstalk]
Tobias: What we’re trying to do in it?
Bill: Oh, I was just trying to fuck around and skim premium. Selling spreads at the wrong time, and because I can’t get myself to buy the options when there’s that much vol. Because I’m just convinced vol crush is going to screw me. Then, my brain rather than saying, well, this is too hard, because it’s my retirement account and I treat it like a dog that I hate. I’m just like, “Well, just sell the options. Who cares?” Well, it turns out that hurt my returns in that account. [laughs]
Tobias: The best book to read about this, because I saw the question come through is just read Greenblatt’s yellow book, You Can Be a Stock Market Genius, or how to be a stock market genius, whatever it is.
Bill: You really want to nerd out, you could read-
Tobias: There you go. You can– [crosstalk]
Bill: -Natenberg, on Option Volatility and Pricing, but don’t do that. There’s better places to spend your time.
Tobias: The yellow book is– [crosstalk]
Michael: I see those questions Ben will post on like, “Hey, you want to be a junior analyst in my firm? Here’s an interview question that you ask.” Every single one of those, I’m like, “I have no fucking idea what you’re talking about in this question.”
[laughter]
Michael: If you gave me that, I would be like, “Can I make you a coffee? I don’t know how to answer that question.” So. I just stick to that one for stupid people.
Bill: Yeah.
Michael: It gets you the most of what you need.
Bill: Yeah, that’s a good book.
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