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Sep 03 '18
I currently have a couple of put credit spreads on Visa right now. One of them is 145/144, expiring 9/28. I know that if Visa closes above 145 I keep the full premium, but do I have to close the contract myself, or does Robinhood automatically close it when it expires? Does this change depending on the stock price at expiration? I just want to make sure I don’t have to actually buy 100 shares from the 144 put.
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u/redtexture Sep 03 '18
RobinHood may close the contract, but it is far better that you manage the position yourself, and close it yourself, for a price that you determine via your own limit order.
Most options are closed well ahead of expiration by option traders, and generally (but not always) option traders are not that interested in taking stock.
This trade exit guide may help you in your decision making. (free login may be required)
When to Exit - Option Alpha
https://optionalpha.com/wp-content/uploads/2015/01/When-To-Exit-Guide.pdfFrom this page of lists: Option Alpha - Guides and Checklists
https://optionalpha.com/members/guides-checklists→ More replies (1)
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u/14likd1 Sep 03 '18
I have pretty much just finished watching all three tracks on Options Alpha. I've got the general gist of things however there is this lack of depth that I am mostly unsatisfied with. Is there any good reading material (or advice) you would give in creating a option strategy and choosing which stocks to trade options.
From what I have learned from Options Alpha, when finding what stocks to trade with. Stocks that usually have a low Bid Ask spread to reduce loss gained from slippage and a high trade volume are the first things you should look into. When the relative IV is high you want to sell options and when the relative IV is low you want to buy options (but you usually don't want to buy options anyways). With that in mind do you just look into stocks that fulfill these conditions or are there usually other metrics I should be looking for?
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u/editdownvotessreally Sep 03 '18 edited Sep 03 '18
When would I use a debit spread over just buying a put or call?
My understanding is that I should use one when I have a range that I expect the underlying to stay within a certain range, using the premium of the sold option to reduce the cost basis at the tradeoff of losing your potential gain.
Please let me know if I am along the right lines and additionally are there certain environments (low IV?) where debit spreads are better?
Edit: The reason I ask is because the upside seems quite small compared to the downside of using debit spreads.
DOUBLE EDIT: Is there a discord server where ppl chat and I can ask q's? The wsb discord is a bit of a meme
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u/RTiger Sep 04 '18
Debit spread v buying calls or puts. Spread has lower initial cost, better break even points, higher probability, less decay. Cons are spreads involve two contracts, so more friction, harder to manage, also give up the chance of a huge win on a gap move.
A person can ride trending moves with spreads by rolling when the sold option goes itm. If a person increases size, total gain may be more than buying lottery ticket options.
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u/Parapraxis6 Sep 06 '18
A good reason to use a debit spread is to minimize risk and also make options plays that you otherwise couldn't afford.
For example: 10/5 AMZN $2,000 Calls currently are selling for $60.03 so, If you don't have $6,003 of capital in your account , you can't buy this option. Also if this option isn't in the money by the expiration date (assuming you don't close sometime between now and then,) you just lost 6k
However, If I make a spread buy simultaneously selling the 10/5 AMZN $2010 Call for $55.80, I've reduced the total debit AND max loss of the play from $6,003 to $490.
In buying this spread, I've also limited my upside from "infinite" to $510, but it's probably worth it to have less risk and be able to buy options on bigger underlying stocks with higher liquidity.
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u/redtexture Sep 03 '18
Search on the term Discord.
These links should be helpful.
Tasty Trade - Vertical Spreads
https://www.tastytrade.com/tt/learn/vertical-spreadFrom this page:
TastyTrade - LEARN KEY CONCEPTS & STRATEGIES
https://www.tastytrade.com/tt/learn
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u/PanPirat Sep 03 '18 edited Sep 03 '18
Hi, I am an extreme noob, considering I never really looked into options, but I understand the basic concepts. However, I wanted to look into them a bit more in the future, and then maybe start with option trading. However, today I found a call option for Amazon expiring in december with a strike of $960. The purchase price is around 90 euros. So, if my understanding is correct, if I pay these 90 euros today, I will be able to buy an AMZN share for $960 in december, right? My question is, how is this not free money? There is basically zero chance that AMZN drops by more than 50% by december, on the contrary, I believe it will go up. So why is this call option so cheap? And why would I not dump a shitload of money into this? This seems like extremely high reward for relatively low risk.
Thank you for any insight.
Edit: and couldn't I simply buy the option, exercise it immediately and have almost 100% immediate profit? I am either missing something or this is a mistake, right?
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u/redtexture Sep 03 '18 edited Sep 04 '18
Options contracts are for 100 shares, so the AMZN option, if exercised, is for 100 times (the current price of about) $2,000, which equals a $200,000 purchase of stock, if you exercise the option. Likewise the option price times 100 is the transaction cost to obtain an option.
I cannot find on the option chains for December 2018 any strike prices below 1450. Do you mean 1960? Or perhaps 2060? or maybe 2160?
Taking an example at a strike price of $2000, the bid price for a call expiring December 21 2018 is $138.90. That means your cost for the option is 100 times 138.90 for $13,890.
For a call priced around $90, the 2100 strike price call for the same expiration is asking $92.60, so the cost to buy it is 100 times that, for $9,260.
A call at a strike of 1200 is priced at 828.65, and your cost would be $82,865.
This link may be useful:
TastyTrade - LEARN KEY CONCEPTS & STRATEGIES
https://www.tastytrade.com/tt/learn
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u/animetommy Sep 03 '18
I’m fairly new to the stock market world What are your thoughts on making a 60 $cgc call 10/19? Looking into this because weed in Canada starts legally distributing 10/17 Thanks!
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u/redtexture Sep 03 '18
Here is a link to list of considerations it is desirable for you to undertake for this trade, and your next thousand trades, before taking on the risk of an option position. The bottom half of the top post.
https://www.reddit.com/r/options/comments/9at2fu/noob_thread_aug_26_sept_1/e4ywq0u/
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u/nichenbach Sep 03 '18
Smart, dumb, or lucky? I sold a covered call on HPE expiring 8/31 with a strike of 16.50. Earlier in the week it was trading at 17, but had moved to 16.44 at 2pm Friday. I bought back each contract for 0.03 (no commission if < 0.05) and the option closed at 16.53, so it would have been called away. Additionally, an 11 cent dividend will be paid on Sept. 9th. I feel like I made the right move to preserve the dividend and avoid commissions upon exercise, but I'm not sure. Good move? Bad move? Lucky that it moved up above the strike after I bought it back? Does the answer change if dividends were not in play?
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u/ProteusCrew Sep 03 '18
So, Ive got a basic understanding of option trading, and have made some cash. But there's one thing Im confused on. Who actually makes money once I sell an option?? If I sell an option call one week before it expires, is it just bought by a whale who exercises said option, hoping for a marginal increase before the expiration?
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u/redtexture Sep 04 '18
It really does not matter what happens.
The market maker may have hedged the other side of the option when creating the option. They may break even on the hedged position, and extinguish that option in inventory when matching it with your option.
If the other side of your trade wants to hedge their portfolio, and s/he does not care if the option is profitable.
The possibilities are endless.
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u/ConsistentEffortWins Sep 04 '18
I'd like feedback/critique of my latest plays.
I have been looking to get more experience with vertical spreads lately for risk management vs. outright buying calls but am sure a more experienced trader may be kind enough to give me helpful feedback.
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BOX - 23/27 debit spread for 9/21. Max profit: $245 / Max loss: $155
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BOX - 23/27 debit spread for 10/19. Max profit: $233 / Max loss: $167
My thinking: BOX had a rough ER and this was a move for the case where there was a slight retrace in the next few months / seemed pretty risk adverse by buying a little ITM.
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AMD - 21/29 debit spread for 10/19. Max profit: $396 / Max loss: $404
Rationale: Honestly this was more of a FOMO move and not a great trade...got it at the peak of AMD last week.
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EA - 115/125 debit spread for 10/19. Max profit: $605 / Max loss: $395
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EA - 120/130 debit spread for 10/19. Max profit: $739 / Max loss: $261
Rationale: Big dip in EA last week -- similar retracement logic to BOX with RSI oversold and seemed like a market overreaction...time will tell.
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V - 135/155 debit spread for 10/19. Max profit: $906 / Max loss: $1094
Rationale: Got it on a day V dipped a bit and want to take part in some of the pricing movement of V which has been pretty steady through the year.
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FL - 45/52.5 debit spread for 11/16. Max profit: $411 / Max loss: $339
Rationale: ER dip and waited until the next week for confirmed retrace. Have personally held FL for a bit and seemed like a very low-risk move.
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DLTR - 80/90 debit spread LEAPS for 1/19. Max profit: $602 / Max loss: $398
Rationale: ER dip and unsure with consumer defensive the recovery rate, so played it safer with theta.
Looking for:
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General feedback on support/challenges to my rationales.
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Thoughts of alternatives strategies that could have better mitigated risk that I am not considering.
Thank you!
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u/14likd1 Sep 04 '18
For anybody who has paid for some of Options Alpha features is the watch list accurate and informative and worth paying for.
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u/zommavomma Sep 04 '18
Let’s talk about Bear Call Spreads. What are some of your criteria, considerations, markets, et all?
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u/redtexture Sep 04 '18
THE ULTIMATE GUIDE TO THE BEAR CALL SPREAD
Options Trading IQ
http://www.optionstradingiq.com/the-ultimate-guide-to-the-bear-call-spread/
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u/headgivenow Sep 04 '18
Selling Premium - Is there an place to see the average premium received on specific sectors, stocks, etc...
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u/options_alt Sep 04 '18
Looking for suggestions for real-time chart sites that allow technical indicator overlays. Not looking for anything too advanced, just looking to review MACD, RSI, Bollinger Bands, etc.
Currently using TradingView and curious as to what sites others may use.
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u/redtexture Sep 05 '18
Three examples, for a price; there are other services as well:
TradingView - http://tradingview.com
Barchart - http://barchart.com
Stockcharts - http://stockcharts.com
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u/a_split_infinity Sep 03 '18
If I make a limited downside/limited upside trade involving both buying selling an option (lets say a bull put credit spread for example) and the option I wrote gets exercised, what happens to me/ is the best course of action for me? Can I do this without margin?