BHP (ASX) Ann: HY2023 Results Presentation

Originally posted by dunnomuch: ↑

The posts on here about buying short term options and bagging out are just mainly incorrect and NOT how options work, or at least how you make options work for you.

Last year there was a similar type of post which resulted in a similar amount of petty reply posts about personal insults etc. Those positions were wiped out with zero return, the same strategy executed this year returned a small outcome which would still be less than the lost capital from either of the prior positions, i.e this isn't a good strategy. As pointed out last year, the movements that had existed the life of BHP were in fact the ex-dividend dates, interesting to see a return of the strategy at this time of year.. also interesting to consider that while holding BHP it was still possible to trade options positions almost each week but not wipe out all the capital. There are some important bits of maths missing from the out of the money punt pricing matrix...

Buying almost out of date options is a gamble pure and simple. When the share price was around $50 it was pretty easy to sell $48.51 call options and bank the premium, these calls expired worthless yesterday and the counter played puts increased without the need to sell the underlying stock which still is able to accrue dividends that are also fully franked. That is an option strategy, not a random punt. Rolling an option position can gain pretty good income if you know what you are doing. It is also important to understand the difference between European and American style options and how to use them differently to set up your position so you can leave whenever you like but not be exercised from underneath. Pricing is only 1c difference but exercise terms are quite different. Rolling is where you effectively re-buy your position and if the timing aligns then you keep banking premiums which can be the benefit of deltas, gammas or thetas even though the price remains constant. BHP can be rolled pretty much every week, smaller stocks like WOW have different exercise timelines (every 2 weeks etc) but always on a Thursday.

When you buy on market you pay the higher price of the spread which can be a significant difference, equally the sell price is the lower of the spread so even though there can a material move you don't actually capture that difference. Options are very different from shares and anyone telling you otherwise is lying or completely ignorant of how the market actually works. There was the statement that 9c puts were purchased, the buy/sell spread was almost 80% as in the buy price was 9c the sell price was about 5c. Because they were out of the money and almost expired the only other person in the market would have been another mad punter or the market maker who would have clipped a good profit. You get a better price when you write/sell/create the options.

Shorting BHP, or any other stock, involves a stock borrow agreement. If you haven't signed one of those with a trading desk then you are not shorting the stock... creating a short position on market on BHP, or any other large cap stock, is easily done by selling call options on your underlying position and then using that premium to buy puts. If you don't have 10,000 BHP shares etc you can still create this same market but you need a margin buffer held in account. That is how you short a position, not buy out of the money punts. A trading desk is the bank that is creating those positions, not a piece of furniture. The trading desk effectively holds your stock as a collateral for the options created, if you don't have the stock then they hold cash as a margin.

If anyone wants to understand options trading, have a look on the ASX website as a bare minimum.

Expand

"It is also important to understand the difference between European and American style options and how to use them differently to set up your position so you can leave whenever you like but not be exercised from underneath. Pricing is only 1c difference but exercise terms are quite different."

Just to be clear the strike price is only 1c different, however the value or price of the option (American v's European) can be quite different especially around ex dividend dates.

I think you meant this, however it could be misunderstood.

As a seller of options, European are much more conservative and you don't need to cover early exercise considerations (mostly around dividends) however, unfortunately, much of the open interest is in the American style option.

No.	Vol.	Price($)
5	12579	$42.40

No.

Vol.

Price($)

12579

$42.40

Price($)	Vol.	No.
$42.45	1000	1

Price($)

Vol.

No.

$42.45

1000

No.	Vol.	Price($)
4	2772	42.400
3	1800	42.390
5	3958	42.380
1	14	42.370
1	350	42.360

No.

Vol.

Price($)

2772

42.400

1800

42.390

3958

42.380

42.370

350

42.360

Price($)	Vol.	No.
42.450	1000	1
42.470	100	1
42.500	1919	5
42.550	1105	2
42.590	1626	1

Price($)

Vol.

No.

42.450

1000

42.470

100

42.500

1919

42.550

1105

42.590

1626

(20min delay)
Last $42.41		Change 0.030(0.07%)		Mkt cap ! $215.0B

Open	High	Low	Value	Volume
$42.50	$42.65	$42.22	$486.6M	11.45M


Last $42.40		Change 0.030 ( 0.01 %)
Open	High	Low	Volume
$42.64	$42.65	$42.22	1987414
Last updated 15.59pm 03/05/2024 ?

"It is also important to understand the difference between...

Featured News

Provident Aurum's off-market bid sends Sihayo shares soaring

Why Princeton Professor rates BlinkLab's autism & ADHD screening app

Macquarie profits fall 32% on 'market volatility' and low-achieving 'green investments'

Car EV-olution accelerates Oz into pole position

Infini Resources gearing up for UAV geophys survey over Portland Creek

Sold out signs go up for RIU Resources Roundup in Sydney

Patagonia shares rise above 20% on lithium grades at maiden well in Argentina

Lithium Universe ends the quarter charged up for Quebec Refinery roll-out

Dancing to that same 70s tune, China, and why I'm backing gold

BPH Energy renews NT Bonaparte Basin permit

Buyers (Bids)

Sellers (Offers)

Featured News

"It is also important to understand the difference between...

Featured News

Top Stories

Provident Aurum's off-market bid sends Sihayo shares soaring

Why Princeton Professor rates BlinkLab's autism & ADHD screening app

Macquarie profits fall 32% on 'market volatility' and low-achieving 'green investments'

Car EV-olution accelerates Oz into pole position

Infini Resources gearing up for UAV geophys survey over Portland Creek

Sold out signs go up for RIU Resources Roundup in Sydney

Patagonia shares rise above 20% on lithium grades at maiden well in Argentina

Lithium Universe ends the quarter charged up for Quebec Refinery roll-out

Dancing to that same 70s tune, China, and why I'm backing gold

BPH Energy renews NT Bonaparte Basin permit

Buyers (Bids)

Sellers (Offers)

Featured News