Dear secret broker, I need to know more about your dirty call options. Much more.

After 35 years of brokerage for some of Australia’s and the UK’s biggest houses and investors, the Secret Broker regales Stockhead readers with his colorful war stories – from the trading floor to the dealer’s desk.

Now is the time to take a break from the past and clear out the fan mail.

Dear Hot Sexy Brokerage Man,

I found out today that we share the same laundry, which is very exciting for me and she was telling me that she had spent a hell of a time getting the stains out of your black suit, before you left for London.

I put it on my friend Monika in America but it turns out I had the wrong idea and curry ‘n’ chips isn’t a thing in the US.

But that is not why I am speaking to you today.

The other day you mentioned that if you were younger you would get “down and dirty” in the stock options market in America and I was curious how your trade would have ended.

I have capital (and energy!) that I’m happy to risk and was hoping you could help me understand a bit more about “writing uncovered calls”.

I was very good in English at school, if that helps. I also like fast cars, if you know what I mean, and my Italian financial planner only seems interested in some of my other assets.

Maybe we could meet at Joe’s Cafe where you could give me a guide and a steady hand?

Yours,
Mrs. P. Pitstop*.

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Dear Ms. Pitstop*,

What a pleasure to hear from you.

It’s amazing what a mess one can get into at a wake, especially when it comes to old shopping buddies and expensive Mexican tequila.

As they say, “one tequila, two tequila, three tequila, floor” and that was Henry’s favorite drink, so we certainly sent it in style.

Now I must warn you that you will need a plot of energy.

I highly recommend that you ditch the financial planners of any Italian lover you may have to entertain yourself on weeknights. But if you must, opt for a Germany or Belgium lover financial planner instead.

Weekends are fine as the markets are closed, but during the week you will only want mundane and boring distractions. You have to concentrate.

Remember, it’s only your money that needs a good weekday workout; not any of your other assets.

In the example in my article, these call options have effectively expired worthless, as I suggested.

As I think I pointed out, 90% of all stock options do expire worthless. This one was a really special situation, where all the stars were aligned at the same time.

Here’s what they did on their very last day, September 16, 2022:

1. Hit a daily high of 17c
2. A volume of 9,186 contracts traded
3. Open Interest – This is the number of contracts that expired with zero value.

Additionally, this particular contract once traded at $18.95 and always closed at zero value.

How’s that for a short!

When I say all the stars had aligned, two days before I wrote about these options, the company’s CFO had horribly thrown himself out the window.

When this happens, it usually means that the underlying stocks will never recover. The bean counters must have really screwed up for him to take this action.

These kinds of situations are quite rare, and you have to be somewhat prepared to put aside the emotion and be comfortable bagging money in the midst of someone’s misfortune.

I did my first options trade in 1982, when there was a lot of that kind of acrobatics on the windowsills, and probably before you were born. I am therefore fortunate to know and understand the risks involved.

You must be very strict in your way of thinking and without any distractions.

So, come to think of it, you might be in a better position to lose your options trading virginity in Australia before venturing overseas.

Here’s a good place to start and maybe when I get back we can chat a bit more online because after reading your correspondence Mrs B for some reason is now in control of all the things that require dry cleaning .

So, Ciao Bella,
Maybe another time,
TSB.

*Real name has been changed to protect the reputation of everyone involved.

The Secret Broker can be found on Twitter here @SecretBrokerAU or by email at [email protected]

Do not hesitate to contact him with your best stock advice and ideas.

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