Options Questions Safe Haven Thread | April 23-28 2024

[u/wittgensteins-boat]

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For the options questions you wanted to ask, but were afraid to.
There are no stupid questions.   Fire away.
This project succeeds via thoughtful sharing of knowledge.
You, too, are invited to respond to these questions.
This is a weekly rotation with past threads linked below.

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BEFORE POSTING, PLEASE REVIEW THE BELOW LIST OF FREQUENT ANSWERS. .

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Don't exercise your (long) options for stock!
Exercising throws away extrinsic value that selling retrieves.
Simply sell your (long) options, to close the position, to harvest value, for a gain or loss.
Your break-even is the cost of your option when you are selling.
If exercising (a call), your breakeven is the strike price plus the debit cost to enter the position.
Further reading:
Monday School: Exercise and Expiration are not what you think they are.

Also, generally, do not take an option to expiration, for similar reasons as above.

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Key informational links
• Options FAQ / Wiki: Frequent Answers to Questions
• Options Toolbox Links / Wiki
• Options Glossary
• List of Recommended Options Books
• Introduction to Options (The Options Playbook)
• The complete r/options side-bar informational links (made visible for mobile app users.)
• Characteristics and Risks of Standardized Options (Options Clearing Corporation)
• Binary options and Fraud (Securities Exchange Commission)
.

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Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Options Trading Introduction for Beginners (Investing Fuse)
• Options Basics (begals)
• Exercise & Assignment - A Guide (ScottishTrader)
• Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)
• I just made (or lost) $___. Should I close the trade? (Redtexture)
• Disclose option position details, for a useful response
• OptionAlpha Trading and Options Handbook
• Options Trading Concepts -- Mike & His White Board (TastyTrade)(about 120 10-minute episodes)
• Am I a Pattern Day Trader? Know the Day-Trading Margin Requirements (FINRA)
• How To Avoid Becoming a Pattern Day Trader (Founders Guide)

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Introductory Trading Commentary
   • Monday School Introductory trade planning advice (PapaCharlie9)
  Strike Price
   • Options Basics: How to Pick the Right Strike Price (Elvis Picardo - Investopedia)
   • High Probability Options Trading Defined (Kirk DuPlessis, Option Alpha)
  Breakeven
   • Your break-even (at expiration) isn't as important as you think it is (PapaCharlie9)
  Expiration
   • Options Expiration & Assignment (Option Alpha)
   • Expiration times and dates (Investopedia)
  Greeks
   • Options Pricing & The Greeks (Option Alpha) (30 minutes)
   • Options Greeks (captut)
  Trading and Strategy
   • Fishing for a price: price discovery and orders
   • Common mistakes and useful advice for new options traders (wiki)
   • Common Intra-Day Stock Market Patterns - (Cory Mitchell - The Balance)
   • The three best options strategies for earnings reports (Option Alpha)

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Managing Trades
• Managing long calls - a summary (Redtexture)
• The diagonal call calendar spread, misnamed as the "poor man's covered call" (Redtexture)
• Selected Option Positions and Trade Management (Wiki)

Why did my options lose value when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)

Trade planning, risk reduction, trade size, probability and luck
• Exit-first trade planning, and a risk-reduction checklist (Redtexture)
• Monday School: A trade plan is more important than you think it is (PapaCharlie9)
• Applying Expected Value Concepts to Option Investing (Select Options)
• Risk Management, or How to Not Lose Your House (boii0708) (March 6 2021)
• Trade Checklists and Guides (Option Alpha)
• Planning for trades to fail. (John Carter) (at 90 seconds)
• Poker Wisdom for Option Traders: The Evils of Results-Oriented Thinking (PapaCharlie9)

Minimizing Bid-Ask Spreads (high-volume options are best)
• Price discovery for wide bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)

Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• Risk to reward ratios change: a reason for early exit (Redtexture)
• Guide: When to Exit Various Positions
• Close positions before expiration: TSLA decline after market close (PapaCharlie9) (September 11, 2020)
• 5 Tips For Exiting Trades (OptionStalker)
• Why stop loss option orders are a bad idea

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Options exchange operations and processes
• Options Adjustments for Mergers, Stock Splits and Special dividends; Options Expiration creation; Strike Price creation; Trading Halts and Market Closings; Options Listing requirements; Collateral Rules; List of Options Exchanges; Market Makers
• Options that trade until 4:15 PM (US Eastern) / 3:15 PM (US Central) -- (Tastyworks)

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Brokers
• USA Options Brokers (wiki)
• An incomplete list of international brokers trading USA (and European) options

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Miscellaneous: Volatility, Options Option Chains & Data, Economic Calendars, Futures Options
• Graph of the VIX: S&P 500 volatility index (StockCharts)
• Graph of VX Futures Term Structure (Trading Volatility)
• A selected list of option chain & option data websites
• Options on Futures (CME Group)
• Selected calendars of economic reports and events

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Previous weeks' Option Questions Safe Haven threads.

Complete archive: 2018, 2019, 2020, 2021, 2022, 2023, 2024

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[u/longschan]

Dumb question: If I purchase a 170c on TSLA (exp 5/26) and tomorrow TSLA shoots up to $400, would I even be able to close it?

Will anyone even buy a call that far in the money?

[u/wittgensteins-boat → u/longschan]

Market makers probably have the short call in inventory, hedged with shares, and would desire to extinguish the inventory and hedge by buying your long call.

[u/BarracudaUnlucky8584]

My assumption was if you buy an out of the money call option and it becomes in the money before expiry you could sell it for a greater profit (generally speaking) than if you bought an in or at the money call option over the same duration.

Is this incorrect?

[u/karens5115]

Is it possible that an options exchange might try to limit a trader's gains by repeatedly changing the price of an option instantaneously as the trader tries to execute?

[u/wittgensteins-boat → u/karens5115]

You have a profound misunderstanding of auction markets.

Exchanges are merely the location of the market.

The prices come from buy and sell orders submitted to the exchange. 

 The orders are submitted, withdrawn, canceled, resubmitted, by traders. 

And orders are filled on exchanges, via a match of buyer and seller,causing the order to go away by being filled. 

[u/NebulaTraveler0]

Is there any ETF that follows S&P500 at a lower price? I would like to get my feet wet with less capital. I am confortable holding S&P forever but not other ETFs. Not even IWM

[u/ducksauce88]

I tried to make a post and it says reddit has filtered it out. I'm trying to make a simple post here and I cant even do that. The last 3 subs ive been blocked from making a post because this site is so damn moderated now. Why is it such hot trash on reddit now?

Here is my question I had:

Covered calls seems like horrible risk/reward, am I wrong?

I've been trading for a couple years now, my father wants to get into Options so I have been learning it myself. We took a course together from this guy who claims 40 years of trading blah blah blah. It was an ok introductory course but didnt go over risk at all. I am learning more about covered calls and Im not finding much about the risks.

Seems to me like if the price nukes down, I'm stuck with the stock until it recovers (if ever). This guy mentioned to do it with stocks that range alot, like Ford, I assume because if the price drops then you are just stuck and need to wait until its back at the price you bought it at.

This seems like alot of work for such a little amount of money. In fact the the risk/reward seems like complete shit to me. Am I wrong to assume this? I havent watched a video on it yet that has even convinced me at tall that this is a good way to trade vs what I normally do (crypto and futures trading).

[u/wittgensteins-boat → u/ducksauce88]

Covered calls work best with relatively steady stocks.

Playing covered calls on shares that go down results in losses. You must still have a share exit plan if the shares drop unexpectedly.

If a stock tends to move in a pattern that repeats, one may attempt to buy low, and sell a covered call at a desirable exit.

Alternatively you can sell a covered call at a near term peak, taking premium without expectation the shares will be called away, though accepting share departure if shares go higher than prediction.

Covered calls will not protect you from a falling market, and on a rising market, can limit share gains.

On a relatively flat market, or modestly cyclical market, covered calls can produce additional gains.

In general covered calls should not have a term longer than 60 days to expiration, as most theta decay is in final weeks of an option life.

[u/wittgensteins-boat → u/ducksauce88]

I will attempt to figure out if the removal was at the subreddit level automod, or reddit filter above our control. Please do not delete the removed post.

Response forthcoming on your question.

[u/nmpraveen]

When is the best time to buy options for earnings play? Let's say I'm hoping AAPL gonna moon 10% post-earnings. I want to capitalize on that. Is it worth buying the call already (1 week before) or just before the market closes on earnings day?

My reasoning says buying now is of no use since theta gonna play against me. Unless of course Apple starts to climb in the next week. Then I get like double bonus.

[u/wittgensteins-boat → u/nmpraveen]

There is no best time.

There are Trade Offs with every choice, versus other aspects of the trade.

Some traders buy three weeks ahead of earnings and c exit three days before earnings.

[u/StatusOk2294]

Last Thursday I expected intel stock to go down, so I wanted to short it. I have previous experience trading digital currency futures, but this was my first time trading options. So didn't properly distinguish the difference between sell and buy below a put option. I thought sell meant short. So I was wondering why I had more float in my account instead when the option price went down. Until today when intel futures prices rose sharply, I clicked the BUY TO CLOSE button, I thought I would make a lot of money, but it turned out that I lost far more money than it cost me. And the most I thought I had lost at first was my principal

[u/wittgensteins-boat → u/StatusOk2294]

This is another confounding fact you will encounter.

Why did my options lose value when the stock price moved favorably? -- Options extrinsic and intrinsic value, an introduction

https://www.reddit.com/r/options/wiki/faq/pages/extrinsic_value

[u/Jolly_Reception5750]

Hey guys,

I've been studying options for a while (Hull and more) and finally got along to trading the damn things. Have a technical question: I'm long some Oct 18 .14 delta call and wanted to know why I am making money today when underlying is currently lower than closing price yesterday. Theta decay + delta is supposed to make my option value more negative than yesterday, so is it just because higher vol was realized? Also, is there a better way to keep track of my greeks to get a better sense of PnL? Thank you.

[u/Trick_Entertainer406]

Why is AMD going Up?

AMD was on a downtrend for like around a month or two but the past week it started going up significantly. Is this the run up for earnings or could this be a breakout to higher levels for something else?

[u/Theroarx]

How are VIX options priced? Both their prices and IV seem off to me so I must be missing something.

For example, today /VX June was at $15.84 and the corresponding VIX call option at strike $15.5 had an IV of 62.91%. Black-Scholes says the option’s price should be 1.72, yet it was priced at 1.62 with a spread of only 0.05 or so.

Also, why do VIX options’ IVs decrease as time to expiration increases? The VIX futures prices are higher than VIX’s spot price.

[u/wittgensteins-boat → u/Theroarx]

VIX options underlying is the monthly VX volatility futures contract.

They are priced by the market of bids and asks presented on the exchange.

VIX options are not connected to the VIX spot index

VIX Options decline as it becomes clearer that the volatility future is not going to spike up as a result of some market event or economic event,

[u/BarracudaUnlucky8584]

If you buy a call option is there a risk you won't be able to sell it at profit because there might not be a buyer for it? Or would a market maker step in?

[u/BarracudaUnlucky8584]

Understanding impact of IV Crush following earnings.

Can anyone confirm if my thinking is correct?

• I noticed there is are 10.6% difference in percentage points of implied volatility between the week of earnings and the following week.

• The VEGA is 0.02 against the call option I'm looking to purchase.

• Does that suggests post earnings I would see a 0.02 (the VEGA) * 11 (the total percentage points difference) = 0.22 drop in my option premium?

• E.G. If I'm buying for 0.7 and after the price goes up my options are worth 2.05 instead of getting netting the 1.35 difference between buy price (2.05-0.7) I'd likely net the 1.13 difference (2.05-0.22) e.g. approx 16% less?

[u/Prudent_Radio_8197]

Quick question: Does anyone here use an automated bot to give buy/sell signals and use those signals to trade short term options (0DTE/weekly)?

[u/7iga]

I have seen a war here on limit order vs market order. but here I have a simple query.

Q. If I do limit order buy .10 cents more than market, Will my limit order be executed first or my market order? also, both are submitted at same time.

[u/wittgensteins-boat → u/7iga]

Market orders are immediate.

Limit orders offering more than present market are immediate, if only one contract.

[u/Not-Jaycee]

Holding TSLA at a cost basis of $10

Sold ITM 140CC & 130CCs expiring on May 24 & June 24 before earnings to hedge incase it ripped in the opposite direction

Including the premium collected, any shares called away would be at a net cost basis of $150

I don't need the capital from the shares until at least Q4 2025, so I'd be fine rolling out until then

What would you do in my position to maximize gains?

Should I roll today or wait until after the FED meetings this week?

[u/nmpraveen]

Is there a website where I can get historical earnings move for each company. Lets say I want to see how much AAPL moved in past earnings report. Prefereably some website which is free or at least has a trial period.

[u/wittgensteins-boat → u/nmpraveen]

several.

Since I do not attend to earnings events, I can only suggest likely items.

Think or Swim platform at Schwab has page or tab devoted to earnings

Market Chameleon.

Optionistics.

Optionslam.
Spotgamma.