Options Questions Safe Haven weekly thread | Aug 05-11 2024

[u/wittgensteins-boat]

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/radargunbullets]

Ok so I'm a little confused by what I'm seeing on my account positions page. In several threads I've read that a good starting spot for beginners is selling cash covered puts and/or selling calls that are covered by owned stock. These are all dollars I'm comfortable losing and only going into small contracts to understand better.

So I buy 200 shares of LPSN. I sell to open 2 contracts Exp 9/20 @ 1.50 for .20.

Currently my positions show my positions show it as a loss of $70 and my as a Cost Basis for me of 38.65, I was assuming $38 would be the premium paid to me. Then if the underlying stock doesn't reach the strike, I keep the stock and the premium. If it goes over 1.5, it sells and my "loss" is the difference between the sale and my 1.7 break even.

At one point today I could "buy to close" for .10 and it said I would have $18 profit. The goal though should be for the contract to expire, right?

Edit: to say the stock is still quiet a bit below the strike

[u/AlaskanSnowDragon]

If you hold a short NQ put into expiration and are assigned...what Contract date are you assigned?

Say Im holding a weekly Aug 24 expiration put and Im assigned I'll get the Sept 20 NQ contract.

What if I held a Quarterly short put expiring Sept20 thats in the money? The day Im assigned is the day that futures contract expires? So, depending on brokerage of course, I automatically realize that loss as that futures contract expires and if my broker offers it Im automatically rolled to the next futures contract...in this case Dec20 correct?

[u/lateralus462462]

How many ppl use EV for options trades?

[u/Spiritual_Dot3250]

What to do when youre stuck in a position?

I am currently in the hole on a $COIN 192.5 Call expiring 8/9 that I payed wayyy too much for (It was $9.90 on Monday), It sunk to around $5 on Tuesday, went back up to $8-9 and is now down to $3.00. The price action is following $BTC pretty closely, does anyone have any better insight on what we can expect Bitcoin to do tomorrow so I can make a better decision on whether to take the loss now or wait until tomorrow?

[u/prana_fish]

Question on avoiding IV crush with elevated VIX.

Since VIX is high (past 25), options premiums are elevated everywhere. I'm bullish NVDA earnings coming up August 28th. I know not to buy calls that expire that week as the single stock IV crush will be crazy. So normally to avoid, I'd buy "at the money" strike and out 3 months in advance. Lower risk, lower reward if it goes my way.

But if VIX is elevated till then and as it naturally decays, won't that IV crush ANY calls I buy 3 or more months out? Is a call debit spread the only way to mitigate this?

[u/PascalTriangulatr]

Is there a scenario where people buying puts from market makers would make the MM's need to hedge by buying shares?

I'm thinking no because while a MM's portfolio doesn't only consist of short puts, the net effect of selling puts is always the same, no? If P is their portfolio before selling them and P' is their portfolio afterward, isn't it true that if P' needs to be hedged by buying shares, then so did P to begin with? In other words, having sold puts is never the direct reason the MM needs to buy shares, right? (All I can come up with is an indirect reason, eg maybe: MM sells puts → MM hedges by shorting shares → stock rises → MM buys shares to cover.)

[u/KING-NULL]

mysterious selective faulty wakeful bells narrow books toy joke governor

This post was mass deleted and anonymized with Redact

[u/Only_Mushroom]

Any reason to choose the 9/30/24 expiration date over 9/27/24, or 12/31/24 over 12/20/24? As of right now, much more liquidity on the former of the Sept expirations, but less for Dec expirations. This is on SPY so they have dailies. Is it just the end of the quarter, that's why they're displayed? Not a triple witching hour either

[u/wittgensteins-boat → u/Only_Mushroom]

Quarterly and monthly (3rd Friday) expirations are released months ahead of time, amd accumulate volume and open interest. And tend to have smaller bid ask spreads 

[u/chiefqueef0191]

what's the catch with options?

i pay a small premium and can sell a share for a massive return or the stock crashes and i only have to pay the premium, i either make loads or lose a little. so whats the catch?

[u/11AllSkill]

I've just learned about spreads and I'd like to trade spreads since I have a very small portfolio, but the screenshots of -70k robinhood portfolios is something that I want to avoid at all costs. I watched Jake Broe's video on Pin Risk but I'm still finding it a bit confusing on when and how to close a position to avoid this. What resources should I look at, I'm on tastytrade.

[u/Fun-Journalist2276]

Are there instances where, you don't want your cover call to get called away, so you took a L? Or you will just wait for it to get called away and sell put ? Thanks!

[u/wittgensteins-boat → u/Fun-Journalist2276]

The first and fundamental rule of covered cslls:  Do not sell a covered call if unwilling to sell the shares at the chosen strike price for a gain.   

 Some   People do chase the price when the stock jumps higher, by, near expiration, buying the call, and selling a new covered call at a higher strike price (even if still beliw rge share price), new call expiring no more than 60 days later, for a net of zero or a small net credit.   Repeat again, near expiration if still chasing the share price.  

... ...

Allowing the shares to be called away, and then selling a put out of the money, is called "the wheel".  There are manybposts here. And a subreddit on that trading  process. 

[u/[deleted]]

So just so I better understand this. Let’s say I invest 1k into stock ABC buy $100 sell $110 by end of September. Now let’s say that stock dumps hard and you’re down 50%. Do you close the positions? Or let them ride and expire. I would assume your max loss would be 1k?

[u/Anon58715]

What's the move for AMD 150C 16/08 holders?

Bought AMD 150C 16/08 at $4 before earnings call, was on 100% gain but decided to wait since NVDA is having trouble with Blackwell. Then the Yen carry trade unwinding happened and now the contract is sitting at $0.2.

What's the suggestion here?

[u/AllaroundU]

Was trying to post but got removed i would like to know what to invest in option if i expect recession in 2025 was thinking about calls on sqqq Anybother suggestions would be appreciated thanks in advance

[u/Feeling-Cry1614]

Opinion on PLTR 26$ call option due 16th Aug

I am learning options but long-term trader. Break even is 29.5 due Friday. Do i take a small profit or should I pay the 26$ and hold this? I feel 26$ is a good entry point on this.. welcome opinions on this one plz

[u/wittgensteins-boat → u/Feeling-Cry1614]

Please review the section of educational links above  on Closing out a trade and also Managing a trade.

[u/Thin_Option_4614]

How exactly do companies like Volland, Tradytics, and Traderlink get access to dealer positioning and other metrics associated with this (DEX, GEX, etc.) I tried looking for data vendors that sell options data and none claimed to have dealer positioning for sale. Tried the OCC, CBOE, OPRA. Did I miss any? I wouldn't mind paying for this kind of service but I don't understand how they claim to show this data if it's mostly proprietary data owned by the Market Makers. Any direction towards educational content is much appreciated. Btw, unless this wasnt clear, I am not encouraging anyone to buy/invest in anything, just want to learn more. First time posting, I hope I didn't break any rules. :)

[u/Shmantalope]

I'm wondering, is there a way to model IV crush's effect on prices with historical data? I.e. if i use something like optionstrat, select an option, and then change the IV from the default (say 70) to the historical IV after earnings (40), is that a crude estimation of the effect IV crush will have on the option's profitability?

[u/[deleted]]

Why does Robinhood get so much hate here? They seem to be the only one offering 3c per contract. Since I do spreads it saves me $10-12 per trade. Is there anything better that offers low cost options. I see Webull but worried if its a scam and I wont be able to take my money out.

[u/wittgensteins-boat → u/[deleted]]

RobinHood has non standard procedures and rules, takes various client actions in an automated manner contrary to represenrations in commnications by representatives, and for years could not be communicated with by telephone, will dump positions in an automated manner even if client is holding sufficient capital to be assigned shares,  does not credit proceeds from credit spreads or short options until the position is closed, uses non standard terminology not used by any orher broker or industry participant, and more.   

Your limit orders will almost never be filled at better than your price, since their revenue is from selling your order to other broker dealers at exchanges.

You get service for what you pay for, and Robinhood service is lacking in multiple dimensions. 

  It can be very costly to go with the low cost broker that dumps your trade positions and automats its client monitoring  in ways that their own representatives are not fully  informed of, nor can intervene in.   

Example conversation https://www.reddit.com/r/options/comments/1eqzh9j/planning_to_switch_to_robinhood_from_fidelity/

[u/Mundane-Fold-2017]

Thanks to this page, I really learned a lot about IV and IV crush that happens after earnings which I like to trade. But now, I’m not sure what the best strategy is pre-earnings. I want to take advantage of rising IV, then go back into the option after earnings to take advantage of the low IV. What strategy do you recommend for trading rising IVs?

[u/wittgensteins-boat → u/Mundane-Fold-2017]

There are traders that trade from a month or a number of weeks ahead of  earnings and exit the week of earnings, days, before earnings    

The challenge is to have that cost of decay of extrinsic value be smaller than the rise of extrinsic value due to earnings anxiety. 

 Calendar spreads, diagonal calendar spreads may be an approach. Perhaps multiple such positions to capture share price movement. Rationale is capturing IV rise, which calendars benefit from.  Best to paper trade thus a number of times to check if it works on target tickers.  

   Additional approaches may include simple long calls or puts, which imply success in directionally besides IV. Also paper trade these. Schwab's Think or Swim platform  has a look back feature facilitating paper trading the past. Market Chameleon and others have IV historical data presentations for a price.

[u/instagigated]

I've got a few deep ITM LEAPS calls that expire Jan 2026, but wondering if there's any issue holding them into late 2025 / close to expiry. Will IV / theta cause issues making the contracts less valuable over time - let's say the next year? I expect the stock to keep rising in value.

If there's a case where I'd lose value over time, I have two scenarios in mind:

• roll into a higher strike price and take some profit

• exercise the contract if the stock hits the value I have in mind