Author Topic: Picking up pennies  (Read 7773 times)

hyten1

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Picking up pennies
« on: June 03, 2013, 01:01:22 PM »
i was wondering how many of you pick up pennies, meaning doing small opportunistic trades?

for example znga is getting crush right now you can sell jan 15 $2 puts for $0.39, if you get put you essentially pick up znga at $1.61 a share which is almost less than net net, its less than book, and znga has over 1.2bil in cash equivalent (no debt) etc.

yes znga's biz is declining they are trying to figure out the next chapter etc etc.

the point is not zynga, the point is small opportunistic trades that have low risk (one way to limit risk is sizing), making a few bucks here and there. do people do this? if so what are some of these opportunistic trades that you guys do?

i usually sell puts on very out of money strike prices (unless market crashes the likelihood of getting put is very very low)


Parsad

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Re: Picking up pennies
« Reply #1 on: June 03, 2013, 01:25:37 PM »
i was wondering how many of you pick up pennies, meaning doing small opportunistic trades?

Used to, but then Canada stopped production of pennies.  Now I pick up nickels!   ;D

Kidding aside, yes I do look for such opportunities but not through options.  Usually other forms of arbitrage.  Cheers!
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stahleyp

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Re: Picking up pennies
« Reply #2 on: June 03, 2013, 01:32:58 PM »
I'll write puts on companies I want to own anyway. The thing that sucks about put writing, is that it's all taxed as a short term capital gain....even if you've held the position longer than a year.  :(
Paul

hyten1

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Re: Picking up pennies
« Reply #3 on: June 03, 2013, 01:52:41 PM »
agree, i hate these short term capital gains. i guess the way i figure i would of gotten zero on these small trades, 50% of the gain is better than nothing ... but i hear ya, when tax season comes it does suck big time


I'll write puts on companies I want to own anyway. The thing that sucks about put writing, is that it's all taxed as a short term capital gain....even if you've held the position longer than a year.  :(

ERICOPOLY

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Re: Picking up pennies
« Reply #4 on: June 03, 2013, 02:18:21 PM »
I'll write puts on companies I want to own anyway. The thing that sucks about put writing, is that it's all taxed as a short term capital gain....even if you've held the position longer than a year.  :(

For that tax reason I stopped buying calls in my portfolio margin account.  Now I'll just buy the common and hedge it with the put.  Then at least you have some expiring puts that you can hopefully take losses on to ease your tax burden on the puts you write.

hyten1

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Re: Picking up pennies
« Reply #5 on: June 03, 2013, 02:23:44 PM »
eric calls if held over 1 yr is long term as well, no ?

obviously short term calls have short term capital gains

Hielko

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Re: Picking up pennies
« Reply #6 on: June 03, 2013, 02:27:42 PM »
Slightly off-topic: Isn't it possible to shield yourself from short-term capital gains taxes by setting up an offshore company?

ERICOPOLY

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Re: Picking up pennies
« Reply #7 on: June 03, 2013, 02:57:30 PM »
eric calls if held over 1 yr is long term as well, no ?

obviously short term calls have short term capital gains

I'm saying that instead of the calls, you purchase the common paired with puts that hedge the common.

The puts will normally be short-term duration if you roll them annually.  And if your long position is working out with the common, you'll typically be getting losses on those puts -- of course due to wash sale rules the loss won't be useful until you eventually exit the puts altogether, but at least it will be a short term loss.

It's worth thinking about this stuff when your tax rate is 52% on short term gains (the top rate in California).
« Last Edit: June 03, 2013, 02:59:52 PM by ERICOPOLY »

watsa_is_a_randian_hero

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Re: Picking up pennies
« Reply #8 on: June 03, 2013, 07:32:36 PM »
Slightly off-topic: Isn't it possible to shield yourself from short-term capital gains taxes by setting up an offshore company?

HF's do this...can an individual?

watsa_is_a_randian_hero

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Re: Picking up pennies
« Reply #9 on: June 03, 2013, 07:46:26 PM »
replying to OP here...

I've done exactly what you are talking about before: Sell put options at strikes that would be the equivalent of net-net.  Its almost always been large cap tech companies for the following reasons:

-techs often have no/low debt and high cash balances
-techs often have high implied vol's
-large cap techs have high liquidity in the market for their options

I've done this with cisco, dell, microsoft, and apple before (I think there were others too).  I do not currently have any naked put options sold though...pricing is not favorable for this currently in my opinion. 

Other strategies of "picking up pennies" I have used:
-selling options/shorting 3x/2x leveraged ETF's...especially UVXY and FAZ (high vol on the underlyings)
-buying SPACs, voting against deal, and collecting $
-Buying reverse splits/delisting transactions for fractional payouts.
-using options for merger arb
-using options in situations where its clear a "floor" has been established (two examples of this: ORH when it was buying back shares below book supporting price at 40, and BNI before Berkshire bought-out, but after it was clear Berkshire was buying supporting the price at 70).