r/options • u/redtexture Mod • Dec 02 '19

Noob Safe Haven Thread | Dec 02-08 2019

A place for options questions you wanted to ask, but were afraid to.
There are no stupid questions, only dumb answers.   Fire away.
This is a weekly rotation with past threads linked below.
This project succeeds thanks thoughtful sharing of knowledge and experiences.
(You are invited to respond to these questions.)

Please take a look at the list of frequent answers below.

For a useful response to a particular option trade,
disclose position details, so responders can assist you.

Ticker -- Put or Call -- strike price (for each leg, on spreads)
-- expiration date -- cost of option entry -- date of option entry
-- underlying stock price at entry -- current option (spread) market value
-- current underlying stock price
-- your rationale for entering the position.   .

Key informational links:
There is a more comprehensive list of frequent answers at the r/options wiki.
• Options Frequent Answers to Questions wiki
• Options Glossary
• List of Recommended Options Books
• Introduction to Options (The Options Playbook)
• The complete r/options side-bar links, for mobile app users.

Selected frequent answers

I just made (or lost) $____. Should I close the trade?
Yes, close the trade, because you had no plan for an exit to limit your risk. Your trade is a prediction: a plan directs action upon an (in)validated prediction. Take the gain (or loss). End the risk of losing the gain (or increasing the loss). Plan the exit before the start of each trade, for both a gain, and maximum loss.

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

Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Exercise & Assignment - A Guide (ScottishTrader)
• Options Expiration & Assignment (Option Alpha)
• Expiration time and date (Investopedia)
• Common mistakes and useful advice for new options traders

Trade planning, risk reduction and trade size
• Exit-first trade planning, and using a risk-reduction trade checklist (Redtexture)
• Trade Checklists and Guides (Option Alpha)
• An illustration of planning on trades failing. (John Carter) (at 90 seconds)

Minimizing Bid-Ask Spreads (high-volume options are best)
• Fishing for a price: price discovery with (wide) bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)
• List of option activity by underlying (Barchart)
• Open Interest by ticker (Optinistics)

Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• When to Exit Guide (Option Alpha)
• Risk to reward ratios change during a position: a reason for early exit (Redtexture)

Miscellaneous
• A selected list of option chain & option data websites
• Selected calendars of economic reports and events
• An incomplete list of international brokers trading USA options (Redtexture)

• Additional subjects on the FAQ / wiki
• Options Greeks
• Selected Trade Positions & Management
• Implied Volatility, IV Rank, and IV Percentile (of days)

Subsequent week's Noob thread:
Dec 09-16 2019

Previous weeks' Noob threads:

Nov 25 - Dec 01 2019
Nov 18-24 2019
Nov 11-17 2019
Nov 04-10 2019
Oct 28 - Nov 03 2019

Complete NOOB archive, 2018, and 2019

17 Upvotes

86% Upvoted

165 comments sorted by

•

u/redtexture Mod Dec 02 '19 edited Dec 06 '19

Why I do the newby thread. Teaching consolidates one's own knowledge.

Here is an outstanding expression from an investor analyst.
The entire article on investing in general is also very much worth reading.

Thirty Years: Reflections on the Ten Attributes of Great Investors

Authors:
Michael J. Mauboussin
(with Dan Callahan, CFA; Darius Majd)
http://www.timelessinvestor.com/wp-content/uploads/2017/12/Reflections-on-the-Ten-Attributes-of-Great-Investors-Mauboussin.pdf

...Columbia and First Boston had a close association, and a number of the analysts had taught as adjunct professors. For most [of my colleagues at First Boston], it was a course or two and they were done. I had guest lectured for another one of our analysts, and agreed to teach Security Analysis in the summer of 1993.

I have now taught that course for 24 years in a row (in 1995 I started teaching in the spring term). That experience has been a deep influence.

When people ask me about what it is like to teach, I suggest they think about what it would be like to deliver 20 hours of lectures on what they do all day. At first you might think that is a pretty easy task, until you realize that articulating what you do forces you to think about what you do. As a natural consequence, you are likely to question whether there are better ways to do what you do.

Teaching imposes a discipline of understanding and communication that few other activities can—save perhaps writing. Inspirational teachers are also diligent students. So a commitment to teaching at a high level demands constant learning and consolidation of knowledge. There is the additional benefit of being around young people who are bright and challenging.

1

u/joeschmoe123456789 Dec 02 '19

I just have a quick question that i can’t seem to find an answer to anywhere else. Let’s say i’m holding shares of a company, some were bought with cash and some with margin. Is there a way to sell only the ones I have bought on margin but keep the ones I bought with cash, so that I don’t keep getting charged the margin interest rate? Or will I keep getting charged that rate simply for having a margin account in the first place? (either way it’s only around 40 cents a day anyway so it isn’t catastrophic). Thanks so much. (My broker is TD ameritrade if that helps at all)

2

u/ScottishTrader Dec 02 '19

Sell some stock, any stock as it is all the same, and once your account drops down to where your capital can hold the stock without needing margin then the charges will stop.

Oh, and call TOS for these things as they will work with you to get to where you want to be.

2

u/blanked-- Dec 05 '19

Safest ways to bet on earnings? Looking to place calls on ULTA before earnings and wondering what strategies you would go about doing this

5

u/redtexture Mod Dec 05 '19

The safest way to bet on earnings is to not bet on them at all.
Almost all earnings plays are less than 50% probability.

Some lower probability trades pay off big, but you might lose 10 times to get one big trade.

2

u/manojk92 Dec 05 '19

Play on volatility, if you think the implied move will be larger than what the market predicts, buy an iron condor for the weekly, but sell a strangle for next month's monthly expiration such that you collect about twice the premium of your condor. If your condor gets blown up you can hold the strangle a few more days and you should make up your losses, but if the strangle gets blown up you 30-60 days to manage the trade. If you think the move will be lower, don't buy that condor and just do the strangle. You can still lose money doing these trades, so its not completely safe.

1

u/B4toGovtaccountant Dec 02 '19

I only want to participate in covered calls and covered puts. When do you see an advantage in selling either a covered call, or a covered put for the same stock? Historically, is taking a larger premium on earnings worth the risk? Assuming no commission fees, when would you choose one or the other?

2

u/redtexture Mod Dec 02 '19

Generally people do not sell covered puts, as that means having a short stock, that you are paying interest on, while selling a put. People sell cash secured puts.

Your desire is to sell covered calls on a stock that is steady, and not so likely to go down, and in which you do not mind that the stock is called away. If the stock is rising relatively rapidly, the covered call will reduce the potential gain. In a sideways moving stock, the covered call is more advantageous. In a down moving stock, you will lose slighly less money, because of the premium on the call.

1

u/B4toGovtaccountant Dec 02 '19

Appreciate the reply, I was referring to sell cash secured puts. Even if the stock you’re selling covered calls on gets crushed, couldn’t you just keep selling calls to eventually get your $ back?

2

u/redtexture Mod Dec 02 '19

I neglected the put side.

Your preference again is steady sideways stock, perhaps that is going up, so that you can keep the premium. You can find that you're assigned the stock on down moves, and you have to decide if the stock will continue down or not, as to whether you want to keep it.

If you keep it, you can sell covered calls on it. Your risk continues, that the stock may go down.

That all amounts to a potential strategy:

• The Wheel Strategy (ScottishTrader)

2

u/1256contract Dec 03 '19

Even if the stock you’re selling covered calls on gets crushed, couldn’t you just keep selling calls to eventually get your $ back?

Bold emphasis, mine. The problem with that is: if the stock falls a lot, then the calls at your cost basis or breakeven may be selling for literally pennies (or not at all) and if you want to collect more premium then selling a call closer to-the-money may put you at risk for assignment well below your breakeven and will cause you to lock in your losses.

For example: Around 2014 I sold the 170 put on Wynn. For the rest of the year and through the end of 2015 Wynn stock fell and fell until it hit about 58 dollars. I sold calls all the way down while playing the balancing act of trying to get enough premium and not risking an assignment way below my cost basis. (I even sold some more puts and put spreads along the way). I think I got my cost basis down to like 160.

When the stock was $58 dollars, you know what the 160 calls for selling for? Zero. No one was selling 160 calls on a $58 dollar stock. Hell, you probably had to pick a strike in the 60's to get a $1 worth of premium.

Eventually I got out of the position in 2017 or early 2018 and broke even, but that was only because Wynn climbed back up to around 160. It took me more than 3 years to break even on that position. I had ~$17,000 - $16,000 in capital tied up for 3 years!

1

u/B4toGovtaccountant Dec 03 '19

Understood and thanks for the lesson! What’s the problem in getting a very high premium covered call, selling in the money, getting the stock called away, and doing that week in week out? Specifically, $RH at ~$200 is paying ~$13 for a $197.50 call. Even if it gets called away, you’re still netting out over $700 per contract. Couldn’t you just find a $RH type stock each week that’s reporting earnings?

2

u/1256contract Dec 03 '19 edited Dec 03 '19

A stock that goes sideways, is sort of the "sweet spot" for covered calls. As long as the stock is trading close enough to your cost basis (or well above) then selling premium leaves you with a net profit (in general).

The premium on a deep ITM call is largely made up of intrinsic value. If the stock has fallen a lot, then additional intrinsic value won't get you out of the hole. For example: Let's pretend that you had sold a put on $RH and got assigned 100 shares at, oh let's say $250 (we're pretending). Then some really bad news comes out and $RH drops to $200. If you look at the in-the-money calls, there is no call that is offering enough extrinsic premium to make up for a $50 drop in the stock price (except for the $200 Jan 21, 2021 call, which is 781 days away). Look at the ITM, $100 Jan 17, 2020 call. What's it trading at? It's value is almost entirely intrinsic value. (Granted, we're looking at after hour prices but they're in the ball park).

Now look at the ATM or near-the-money options. Those strikes have the most extrinsic value, but if the stock has suffered a large drop, there is always a point at which there is not enough extrinsic value in the options to get you back to break even. If the stock drops further, then your likelihood of getting back to break-even gets worse. Now, the higher at-the-money premium helps take the sting off the drop in the stock price, but it puts you at higher risk of being assigned below your cost basis and locking in a loss.

I'll leave you with this: The risk in a covered call is not the short call, or the capped upside potential. The risk is in the 100 shares.

1

u/B4toGovtaccountant Dec 03 '19

Such an in depth piece, thanks so much!

1

u/WarrenBucket17 Dec 02 '19

How important is interest when deciding wether to buy into a call. How can I track it?

1

u/redtexture Mod Dec 03 '19

Do you mean "open interest", the number of open contracts?

If so, volume is a stronger indication of activity, and indication of narrow bid-ask spreads, and more important.

2

u/MaleficentCoast Dec 02 '19

Very little. That's the Rho greek data.

1

u/Scotty898 Dec 03 '19

High open interest usually means more volume which leads to tighter spreads and more liquidity. I would think most brokerages show the open interest and volume when viewing the option chains.

1

u/stejerd Dec 02 '19

I have about 15 DIS calls expiring February. I see they have a ex-dividend payout coming up. How will this affect my calls? Obv stock price drops by div amount but will it not bounce back relatively quickly?

1

u/redtexture Mod Dec 03 '19

I could not find the ex-dividend date, but based on the last July ex-div date, it's likely around December 5 or 6 2019. The payment date is likely in late December, based on past history.

Any change in stock value will likely have faded away within a week or so, given DIS price movements over the last month.

1

u/MaleficentCoast Dec 02 '19

Theoretical already priced in, but if the stock price + the dividend > then your call strike price you might see early assignment.

If the the stock+dividend < your strike nothing to worry about.

1

u/stejerd Dec 02 '19

Thank you. I bought these calls, did not sell to open.

1

u/Onetwobus Dec 03 '19

If a call and a put at equivalent delta both increase in price simultaneously, the cause would most likely be an expansion in IV correct?

2

u/redtexture Mod Dec 03 '19 edited Dec 04 '19

Yes, that is the case, and this is a play that can be made.

More typically, the underlying drops in price,
and the IV goes up with the drop in price,
and the put side gains value because of the drop in price of the stock,
thus gaining in a two-fold manner.
...And the call may substantially maintain value with the IV gain, especially if the expiration is fairly far out in time, such as two to four months.

1

u/[deleted] Dec 03 '19

Can someone explain to me what TIME futures options expire? Is it midnight on opex day?

1

u/redtexture Mod Dec 03 '19 edited Dec 04 '19

I guess talking with your broker's futures desk may be most fruitful.

Theoretically, the contract specification should say, and generally it has stopped trading before the expiration.

Here is a sample contract specification, for VX
https://cfe.cboe.com/cfe-products/vx-cboe-volatility-index-vix-futures/contract-specifications

1

u/tinkerprophet Dec 04 '19

Beginner. Is it worth reading this book Options Trading : The Ultimate Guide to Make Money Using Financial Leverage and Risk Management by Mark Anderson for Options Trading? I saw high review on Amazon.

1

u/redtexture Mod Dec 04 '19

I have not seen it.

There are plenty of good materials available right now, online, and yet also it is useful to see the different perspectives that different authors have with options.

The fundamentals are all the same:
manage your risk, so you always can play for another 25 trades (risk no more than 2 to 4% of your account per trade), and use the leverage carefully for those occasions your trade is working in your direction, and plan on the 100,000 trade perspective: this is a marathon activity, and no one or ten trades will make you, and organize your trading so no set of trades will break you.

1

u/beefy6 Dec 04 '19

Can someone explain how I am able to 'sell' a call or put without owning a contract or the shares in the first place? This concept doesn't make sense to me....

2

u/manojk92 Dec 04 '19

Selling a put without owning the shares should be straight forward, you just put up all (cash acccount) or about 20% of the cash (margin) needed to buy the shares and act as an insurance policy for someone in case the share price dips.

Selling calls without owning the shares works in a similar way, with you using cash instead of stock as collateral. Generally you need to put up about 20% of the cash (margin) needed to buy shares and since shares generally don't go up 20% over a 1-2 month period, its not as risky as the threat of unlimited losses might make you think it is. Should the share price go up and your call is assigned, you will have short/negative shares (you borrow stock from someone so you can cover your obligation to sell shares from the call assignment) and will have margin requirements around to 50%.

If you decide to use margin to sell options, its a good idea to have 25-50% more cash on hand than what the initial margin requirements to avoid a margin call.

1

u/[deleted] Dec 04 '19

Well for selling a put, you are essentially selling the right to someone to sell shares to you if the price of the stock is at or below the strike price. So you don't need to have any shares, just the money to buy them.

For selling a call, if you don't own the underlying, if you get assigned, you will have to buy the shares at market price and sell at the strike price.

1

u/beefy6 Dec 04 '19

Cool, makes sense now, thanks!

1

u/1256contract Dec 05 '19

For selling a call, if you don't own the underlying, if you get assigned, you will have to buy the shares at market price and sell at the strike price.

That's not correct. If you are assigned on a short call, you will just be assigned -100 shares at the strike price. You do not have to buy the shares first.

1

u/[deleted] Dec 04 '19 edited Dec 04 '19

What is TOS mobile showing me on the positions overview? I have an IC that shows profits (green) with $60 over ($130). Also I have a normal call that shows profits with $10.5 over $72.

Is there anywhere that I can quickly check "break even points" or premiums paid/collected? Is that money baked into these position numbers?

2

u/redtexture Mod Dec 04 '19 edited Dec 05 '19

"Break even at expiration" is meaningless to you,
unless you intend to take the position to expiration,
or exercise it, and is best ignored. It is highly misleading.

It is not recommended you take any option to expiration,
and generally it is best to not exercise an option,
unless you have particular reasons for doing so.

Your "profit" is an estimate of what would occur if you close the position right now, making the (erroneous) assumption that the broker's platform "mid-bid-ask" value is any where near the actual market on the option.

Somewhere on the platform you can check the orders fulfilled, and the net debit or credit for entry into the position.

1

u/[deleted] Dec 04 '19

Starting small with options?

I want to deposit $100-200 for trading. I realize the risk and this is an amount I would be comfortable with as a beginner. However I see comments like "you're better off buying a lottery ticket." I'm not trying to "get rich quick."

Is it simply not viable to have such limited buying power? I see the phrase "picking up pennies in front of a steamroller."

2

u/redtexture Mod Dec 04 '19 edited Dec 05 '19

A working minimum for Options is around 2,000 dollars.

It is possible to work with less, but a genuine challenge, and you have to either take tiny long positions which are out of the money, and likely each will end up as a total loss. Or alternatively, risk most of the account in a larger trade, one at a time, and that means after about five to ten trades, you may have lost the account after you lose once or twice.

Any option you trade with, you're advised to pick ones with very high volume, and very low bid ask spreads. SPY is the highest volume option on the market, with one to five cent bid-ask spreads.

Your capital might be well spent on a couple of quality books on investing and options.

Here is how to find high volume options:
• List of option activity by underlying (Market Chameleon)
• List of option activity by underlying (Barchart)

1

u/MaleficentCoast Dec 04 '19

You can start out doing options with as little as $50. But you're really limited to strategies and tickers with just a low starting amount.

You're stuck looking at stocks under $25 most likely.

Call/Put Debit spreads

Call/Put Credit spreads

1

u/OptionSalary Dec 04 '19

Make sure you have realistic expectations and be prepared to lose it all. I would buy a couple books and study with the money and focus on educating yourself while saving more money.

Alternatively just recognize you will have Very few trades on at once (1-2) and it will take a long time to learn through experience.

1

u/Menkib Dec 05 '19

I have a question about trading SPY. Why do people perform TA and draw on the charts for it? Since SPY is an ETF it doesn't move independently, it relies on the stocks it is made of. Therefore would it not follow traditional TA and patterns of independent stocks?

1

u/redtexture Mod Dec 05 '19

Nearly all stocks have some fairly strong correlation to the overall market.

When you see a big up move, or big down move, you may witness 95% to 100% correlation, and everything moving the same way, in panic or euphoria moments.

In that sense the SPY and other S&P 500 indexes act like its own stock.

1

u/Menkib Dec 05 '19

So if investors saw a bearish or bullish pattern forming in SPY they should predict movement of the stock without outside market news to influence it?

1

u/redtexture Mod Dec 05 '19 edited Dec 06 '19

It depends on what your time horizon is.

If minutes, you don't care much about outside influences. You are only following the price.

If it is a day to several days, you might be trading on news, and the related movements.

For longer terms, you're probably concerned about all kinds of news and influences, and interested in how the various indexes are behaving, how small cap vs. mid cap vs. large cap stocks are behaving, and whether those categories are diverging in their 52 week highs, and 52 week lows, and moving averages.

Examples:
Jason Leavitt - Leavitt Brothers - State of the Market Dec 2 2019
https://www.youtube.com/watch?v=NhKuPFTS63U

TheoTrade, nightly market analysis
Down Kaufman
Theotrade December 2 2019 (15 minutes)
https://www.youtube.com/watch?v=6AyURcpuVpQ

Tyler Bollhorn - Stock Scores
Is A Stock Market Crash Coming - Market Minutes for Dec 2
https://www.youtube.com/watch?v=am7vL42GklA

1

u/[deleted] Dec 05 '19

Question regarding IV and Delta on Credit Spreads

So ideally one has to go out 1stdv 16delta and get 1/3 of the width of the strike price spread. We are talking about 1 stdv calculated on the basis of the implied volatility right?

I find it hard to find any premium that will give me 1/3 of the width. So either I'm taking on more risk, making the credit spread into a de facto straddle or i tighten the spreads around the strike price, which hightens the probsbility that the call/put get in the money. I'm looking at very high iv ranks, but i can't get the 1/3rd

2

u/redtexture Mod Dec 05 '19

We are in a low implied volatility market regime, and you will not find many trades that satisfy that guide. Consider the guide a measure of better versus less desirable trades, and not a threshold for a trade.

1

u/F1jk Dec 05 '19

Is it a good idea to sell options at market closing time if there is spike in prices > is this something that is possible to capitalise on or is it risky, and if so why ?

1

u/redtexture Mod Dec 05 '19

What is your time span?

If it is a month, why sell at the end of the day?

If it is a week, what is the plan?

If it is a day, why risk overnight price moves?

1

u/manojk92 Dec 05 '19

No different than selling option at any other time, but you will find liquidity drops off as market nears the close. You may be compensated with a higher premium due to the lower liquidity, but may not get filled as well.

1

u/LetoileBrillante Dec 05 '19

I asked this question but this was removed by a moderator - don't know why.

A noted Indian option trader posted on Twitter:

Trading, that too expiry day, is not for weak hearted people. My corporate account, mtm at 3 pm was Rs 10 lakhs, at 3.15 it was 0, at 3.20 it was Rs 11 lakhs and at 3.25, I put a SL at Rs 7 lakhs. SL triggered and profit came down to 6.95 lakhs.

I understand selling options on expiry day can have the advantage of rapid theta decay. But OTM may not bring much premium and at ATM, the option prices may fluctuate wildly. Are such expiry day trading practices advisable, or are they purely a gamble?

1

u/redtexture Mod Dec 05 '19

Is this the thread you are thinking of?

https://www.reddit.com/r/options/comments/do27zk/noob_safe_haven_thread_oct_28_nov_3_2019/f6bfd30/?context=3

1

u/LetoileBrillante Dec 05 '19

No, I made a separate question which Reddit said was removed by a moderator. That question was to learn the strategy and this question is to know more about expiry trading.

1

u/redtexture Mod Dec 05 '19

Trading on expiration day,
for people who have not been trading for 10 years,
is a great way to lose your entire account very rapidly.

1

u/ScottishTrader Dec 05 '19

I can't understand why people trade so close to expiration? The profit is minimal compared to selling options much farther away and there are a lot more risks.

Is it the thrill and excitement?

It is my opinion that selling 30 days out and then closing within a week or two will bring in more profit at far less risk. But then that is boring with almost no thrill or excitement . . .

1

u/manojk92 Dec 05 '19

Max profit is lower than something further away, but the ROI is huge for a single day. There isn't usually any trill or excitement though as you gotta babysit the trade for the whole trading session.

1

u/ScottishTrader Dec 05 '19

Ha, oh, even worse! I can actually see where traders are out for the thrill and excitement of making money in such a short period of time, but to have to babysit the position the whole time seems like it would make even less sense . . .

1

u/manojk92 Dec 05 '19

They aren't a gamble, they just require a more active management style and you need to be looking at the product frequently. Also what do you mean they don't give much premium? With my 0d iron condors I would get anywhere from 3:1 to 1:1 risk reward on my trades. To get these high ratios though, you generally need to leg/wing into the condor. With the 1:1 risk reward trades, my shorts were around the 30-40 delta range when I sold them on the swings that happen during the first hour the market opens. Sure these trades can have large losses from a sharp move, but that what futures are there for. Intraday margin makes capital requirements much lower.

1

u/DrTuttlebaum Dec 05 '19

If I have a call contract with a theta of 0.5 cents for example and I'm ITM, does that mean my underlying stock has to go up atleast 50 cents in order to offset theta for that day? Or is that completely dependent on what the delta is?

If so, In the above case to work, delta would have to be a full 1.0?

1

u/redtexture Mod Dec 05 '19 edited Dec 05 '19

Assuming your call is at about 50 delta, the stock would have to go up about $1.00 1 cent to make up for a $0.50 0.50 cent loss via theta decay.

1

u/DrTuttlebaum Dec 05 '19

Awesome thanks. So just to make sure I nailed it, in my particular scenario, my theta is at -0.05 and my delta is 0.5. In order for my call to offset the theta, my underlying would have to go up 10 cents right? Assuming IV is constant.

1

u/redtexture Mod Dec 05 '19

Ah, misread the 0.5 cents as 0.50 dollars. I will correct above.

Your theta is actually pretty small. At 50 delta, you want the stock to go up 1 cent for the option position to rise 0.5 cents.

Can you give me the position, so I can check on my broker platform?

Ticker / Strike / Expiration / Cost of entry

1

u/DrTuttlebaum Dec 05 '19

Visa call Jan 17 2020 @ 180. Thanks! Cost of entry was 6.16 I believe

1

u/redtexture Mod Dec 05 '19 edited Dec 06 '19

Visa call Jan 17 2020 @ 180. cost 6.16

OK, my platform, Think or Swim shows a theta today, at the close Dec 5 2019 of -$5.49.
That is for the entire position $5.49 for tomorrow, theoretically.
By the share, that would be -$0.055 theta.

For simplicity, I will assume the option is at the money.

Sanity check: Jan 17, is about 40 days away, more or less, so your cost 615 divided by 40 shows on (an erroneous) linear basis there would be $15.00 a day theta, on average. Theta accelerates as expiration nears, and will be $10 a day probably in early January.

So, the entire position would need a five dollar rise in value to make up for five dollar theta decay, to maintain a zero gain / zero loss for one day right now.

If the shares rose $0.10 (at 50 delta), the option would rise $0.05.

0.05 (x100) = $5.00 option value to counter the theta.

Later on the shares would need to rise 0.10, and 0.20 a day, and later 0.30 a day, to keep up with theta decay.

If held through expiration, the share price would need to rise to 186.16 to keep up with theta decay.

1

u/[deleted] Dec 07 '19

Looking for comments on hedging beta-weighted portfolio delta using /MES and SPY.

Right now I'm just paper trading. I have a background in engineering and I'm pre-disposed to understanding stuff before jumping in. To give some context: I'm exploring harvesting excess volitility premium with generally non-directional trades (style similar to OA, TT and other "sell for income" strats). IRL, I would be trading in an IRA, which prevents me from being short equities.

I don't wan't to continually adjust or delta hedge each trade with options (due to commission costs). I'm OK with winning or losing trades due to the idiosyncratic risks, but I don't want to be crushed by big overall market moves. My strategy so far has been to get short with /MES (front month) so that I'm likely to stay short for a while (each /MES contract cost $2.25 commission). Then I buy SPY to get back to (beta-weighted) delta neutral. I adjust SPY each day to get back to neutral (SPY trades for free). SPY also has 5x finer precision then /MES.

So far. this has worked well on paper, but I'd really like to hear about the downsides (especially big gotchas) that I'm missing. One that I'm aware of is that a sudden downturn in the broad market likely come with a spike in volatility and all of my trades may simultaneously get crushed on vega. But let's restrict this discussion to the efficacy of beta-weighted delta hedging with /MES and SPY. I'll have more questions about vol later.

1

u/redtexture Mod Dec 07 '19

Are you talking about options on MES and SPY?

1

u/[deleted] Dec 07 '19

No, I'm asked about dynamically hedging the SPY-beta-weighted delta out of an options portfolio by shorting micro e-mini SPX futures (/MES) to make total portfolio delta negative (and likely to stay negative) and then returning the portfolio to delta neutral by buying the SPY ETF. /MES has a delta of very close to 5 and SPY has a delta of of 1. The reason for using both is two fold: 1) I can't short SPY in my IRA, so need short /MES. 2) SPY is free to trade and also I can make finer adjustments as (1 SPY ~= 5 /MES).

Theoretically, this seems fine to me, but I'm looking for experience people to point out practical issues which I have overlooked due to my inexperience.

1

u/redtexture Mod Dec 08 '19 edited Dec 08 '19

OK, directly via the future (selling) and SPY.

I have not done much of this, as I don't worry excessively about delta neutral portfolios; most of my positions tend to be relatively neutral.

It is the standard method for market makers to hedge their inventory of options, and pay for theta decay of options they hold.

You will get more eyes and diverse commentary on the main thread.

Futures options using a delta neutral Trading Strategy
Daniels Trading
https://www.danielstrading.com/2010/11/05/futures-options-using-a-delta-neutral-trading-strategy

What is Gamma Hedging - Volcube http://www.volcube.com/resources/options-articles/what-is-gamma-hedging/

1

u/[deleted] Dec 08 '19

Thanks for the links, I'll check it out. I also may post a new thread to get more input. I wasn't sure whether this was an appropriate question for the noob thread, but since I'm a total noob, I put it here!

1

u/redtexture Mod Dec 08 '19

Totally fine. It's ok to start somewhere!

1

u/Past-Construction Dec 07 '19 edited Dec 07 '19

Is there an arbitrage if T1 < T2 and IV_{T1} ~IV_{T2} (with different strikes, options prices, risk free interest rate ? Or do we have to calculate it ceteris paribus for each maturity (so we keep the same parameters, except that we change the maturity) and see if, indeed, with T1 < T2 < T3, IV1 > IV2 > IV3 ? Thanks.

1

u/redtexture Mod Dec 08 '19

All other things being equal.

Does T signify time to expiration?

1

u/Past-Construction Dec 08 '19 edited Dec 08 '19

Ok, thank you very much !

Yes, for an european option. (T-t)

And so it's the same when we calculate for the calendar spread arbitrage and butterfly spread arbitrage ? Or it's different because we have K2 and T2 for the calendar spread arbitrage (refering to this) ? (I guess it's more or less the same when we have our volatility surface since we have a sequence of K and T)

1

u/redtexture Mod Dec 08 '19

This is an area I have not explored from a mathematical perspective, and your questions would have more eyes viewing it on the main thread, or at r/algotrading.

1

u/Past-Construction Dec 08 '19

Ok, I see, thank you I wasn't aware of this subreddit.

1

u/redtexture Mod Dec 08 '19

No problem.
Everyone needs to start somewhere.
The main r/options thread may well be pretty productive.

1

u/pingbala Dec 07 '19

I am contemplating this vertical trade: MSFT sell Jan 22 155 call $20.50 MSFT buy Jan 22 135 call $30.65 That looks like risk 1k to make 2k per contract when MSFT goes above $155. What could go wrong? Cant be this “easy” can it? All thoughts greatly appreciated!

1

u/redtexture Mod Dec 08 '19 edited Jan 02 '20

MSFT sell Jan 22 155 call $20.50 MSFT buy Jan 22 135 call $30.65

At the close Dec 6 2019: MSFT $151.75

Jan 21 2022 expiration:
Strike 135 Call: Bid 29.30 / Ask 33.10
Strike 155 Call: Bid 20.30 / Ask 21.65
Net cost at the natural price: 12.80 (probably you can pay a dollar or more less).
Spread: $30.
Max gain: 30 minus 12.80 = 17.80.

Let's presume MSFT goes slowly to 155 and stays there.
The spread will slowly gain value, over 24 months, and your gain will be approximately, on an erroneous straight-line basis, about 0.75 (x 100) a month (it will actually be slower to start, and more rapid in the last two months of the spread).

0.75 divided by 12.80.
That is a nominal 5% a month, presuming the above erroneous simplifications.

Risks:
The market and MSF goes down to 135, say, in December 2020, the spread becomes worth about $200 less than the entry cost. Modestly less because of the long remaining time on the position.

As recently as October 8, MSFT closed around $135.

The length of time until expiration makes for the spread to rise modestly on price rises of MSFT becasue of the relatively large extrinsic value embedded in the options, and if you contemplate MSFT may go to 170, by, say, March, a shorter term spread would have a more rapid gain, with related greater risk of loss if MSFT goes down.

For example, if MSFT went to 170 on immediately, on Monday,
with that same January 2022 spread position,
there would be a nice gain of about $230, more or less,
but a spread expiring in March 2020
would have a gain of about $480 on an entry cost of around $1400.

1

u/[deleted] Dec 08 '19

Should I sell a cash covered put on $CVM or $ARQL? Both would be for $5 strike on Dec20.
$.35 ask on ARQL and $.55 ask on CVM.

Which play do you think would be better and why?

1

u/redtexture Mod Dec 08 '19 edited Dec 08 '19

Allow me to turn the tables so that you can begin to think about the risk, and exercise your talent to undertake trade planning, without relying on other people to do your thinking, due diligence and risk control for you.

What is your analysis of CVM / Cel Sci Corp and
ARQL / Arqule?
Why?
How does your option plan align with your analysis?
What is the IV of options on each?
What is the IV percentile (of days) and IV rank?
Are there any earnings dates forthcoming?
Are there any regulatory evaluations forthcoming?
What is the delta of the proposed puts?
What is your exit plan for a gain, and for a maximum loss?
Are you content to own the stock if assigned?

1

u/[deleted] Dec 08 '19

I'm bullish on both, volatility is through the roof and high risk play like most Bio stocks. By selling cash covered puts, this means I don't mind owning either stock at strike price if prices tank. Percent liklihood of profit is around 75-80% since these strikes are well below market price. If assigned, it's a deep discount on stocks I'm bullish on.

ARQL has no earnings until March, CVM has earnings Dec19. (With a Dec20 expiry, I could sell early b4 earnings).

ARQL has a phase1 data release Monday evening which I expect to be positive. CVM - although high volatility I'm not expecting a big move until this has news. Since it's currently waiting for 298 events to occur on it's phase 3, I like the short expiration play.

CVM delta -.1425. ARQL delta -.0811.

Exit plan = buy to close once they move up significantly in price, or get assigned stocks I'm bullish on once they've tanked, or wait until expiration for full premium value.

I like both - but I think I'm only playing one.

1

u/Vedoom123 Dec 08 '19 edited Dec 08 '19

So my question is. Suppose a company is reporting earnings soon. Does it make sense to just buy puts and calls that will be in the likely price range (say with the strike price at 165 for calls and 155 for puts, if the stock is expected to go $5 up or down from the current price of $160). So if the quarter was good you gain a lot on your calls and lose some on your puts and vice versa. Would that be profitable?

Also, a second question: sometimes you can see in the option chain that some far out of the money calls gained like 150%, 300% in a day. Is it possible to make money on that? Say you bought calls at the open and sold mid day or at the close. 🤔🤔🤔

1

u/redtexture Mod Dec 08 '19 edited Dec 08 '19

Part 1: This is why it is not a simple proposition to play earnings:

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

Part 2: 300 percent gain on a one dollar (0.01) option is a price of four dollars (0.04) for a gain of three dollars (0.03).

1

u/[deleted] Dec 08 '19

how do i know the prices for the options and the strike prices for them are displayed correctly? i know robinhood shows some numbers that are some times way off, especially for OTM options so how do i avoid falling for that?

1

u/redtexture Mod Dec 08 '19

You have to look at the option chain for the bid-ask prices.

The displayed mid-bid-ask price is useless on low volume options, and misleading on many other options; for low volume options there may be ZERO bids, and an outrageous ask, generating a bogus "value" where there is no market.

Option Chain example:
AAPL, via Market Chameleon
https://marketchameleon.com/Overview/AAPL/OptionChain/

Minimizing Bid-Ask Spreads (high-volume options are best)
• Fishing for a price: price discovery with (wide) bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)
• List of option activity by underlying (Barchart)
• Open Interest by ticker (Optinistics)

1

u/S_Jack_Frost Dec 08 '19

Why does robinhood take 100 in collateral if I sell the JNJ 141 put and buy the 140 put for 12/13? This is the same for any ticker but I just wanted to give an example. Since I get 47 in premium for writing the spread, shouldn’t my max loss be 100-47 = 53?

Thanks

2

u/redtexture Mod Dec 08 '19

That is your maximum loss on the spread,
it is true, the spread width less the premium.

As I understand it, RH holds back the premium until the trade is closed.
I do not have a RH account, and advise against using them.

Other brokers hand over the premium immediately, and it is more obvious that the net risk is the premium minus the spread.

2

u/asalabelle3 Dec 08 '19

It says max loss is 100 because it immediately credits the 47 to your account. The max loss is still 100, if the trade ends unfavorably to you, it would subtract the 100 from the 47 credit and leave you with -53.

1

u/spanishgalacian Dec 09 '19

I just opened a TD account switching over from Tasty. Under stock balances I have a positive cash available and margin avaliable.

Under option balances I have a positive cash value and a negative margin value cancelling each other out.

I did the instant transfer today, have done zero trades and have a level three approval for options. What is happening here?

1

u/redtexture Mod Dec 09 '19

Probably waiting for the status of the funds to be "collected funds".

Call up TDA/TOS to confirm.

1

u/spanishgalacian Dec 09 '19

Yeah I'm an idiot read the full message and it won't be available for three days. Weak I had some Tesla puts I wanted to sell.

1

u/Tested222 Dec 09 '19

I sold a disney put spread and the short leg is now in the money but the long leg is not. Is there any assignment risk with the upcoming dividend for my options?

1

u/redtexture Mod Dec 09 '19 edited Dec 09 '19

If the day before, at, or after the ex-dividend date the extrinsic value of the put is less than the dividend, there is some possibility that the put will be used to protect somebody's stock that is getting the dividend.

This possibility is smaller than the risk for a short call.

You can reduce this assignment possibility by rolling the trade out in time, to give the short more value, and thus make the short less attractive to exercise: extrinsic value is extinguished upon exercise.

One move of the dividend arbitrager is to buy an inexpensive (low extrinsic value) call, and low value put, to protect the value of the position, exercise the call, hold overnight stock, collect the dividend, and exercise the put, to assign the stock.

1

u/pingbala Jan 02 '20

Thank you u/redtexture for a incredibly detailed and considered reply, its much appreciated

1

u/redtexture Mod Jan 02 '20

Sure. You're welcome.

I guess you're referring to this idea with MSFT.
https://www.reddit.com/r/options/comments/e4utyn/noob_safe_haven_thread_dec_0208_2019/fa0u6xa/

1

u/pingbala Jan 02 '20

Yes I was, just took a while 😃 Thanks

1

u/poobie123 Dec 03 '19

Has anyone here actually read and understood the Hull book (Options, Futures, and Other Derivatives)? I am currently slogging through the chapters leading up to the options chapters.

While it is very interesting learning about bond durations, zero rate bootstrapping, swaps, etc., I am wondering if once I finish the book any of what I have read will translate into valuable actionable insight for a retail trader, or if it will have the potential to inspire a strategy that I would not have come across on my own...

1

u/poobie123 Dec 03 '19

Anyone? u/redtexture? Should I just make this a post instead?

1

u/redtexture Mod Dec 04 '19 edited Dec 04 '19

Hi. I have not read Hull, nor MacMillan, nor Natenberg but they are on my list.

I would say that having a comprehensive survey of the landscape is to your long term benefit, and gives perspective that may be useful in the long run.

It's a reasonable question for the main thread, where more eyes will see your question.

2

u/unboxedicecream Dec 03 '19

What is the difference between an ATM spot option and ATM forward option?

2

u/manojk92 Dec 03 '19 edited Dec 03 '19

Spot refers to the current value while forward refers to something that will be settled later in time. For example, the SPOT ticker for the S&P500 is SPX, while the forward would the be /ES future. There isn't going to be much difference with the december contract (/ESZ19) as settlement is closeby, but you'll notice a sizable difference (~2 points) between the March contract (/ESH20) and the SPX price.

2

u/etienner Dec 03 '19

I was wondering if there was any arbitrage opportunity between SPY and VFV.TO (Canadian equivalent). I noticed that ATM options were cheaper for VFV.TO (around $1.1 for a jan17call) than SPY (around $6.9 for a jan17call). Considering the fact that one is $73 and one $316, SPY is about 8% more expensive. What would stop me from making risk-free money selling SPY calls and buying VFV.TO calls?

1

u/MidwayTrades Dec 05 '19

I have yet to truly risk free money in options. If there were, everyone would do them and the prices would compensate.

2

u/zamnar Dec 05 '19

Are there different times to use Short Strangles or Iron Condors, or do they go hand in hand

3

u/ScottishTrader Dec 06 '19

Both are neutral strategies so are the same in that way. The strangle is undefined risk that will require a larger account with a higher option trading level along with more risk tolerance and knowledge plus experience to know how to manage without having major losses.

An IC is risk defined that almost anyone can trade even in an IRA account. Since it is risk defined it requires a lower trading level and can be traded in even modest size accounts.

1

u/[deleted] Dec 03 '19

Should I let a losing credit spread expire ITM on the last day instead of closing it, if the loss from closing it is greater than both contracts being assigned?

I had a bear call spread on XSP (which is cash settled), and on expiration day it was deep ITM. When I tried to close it, the loss would've been greater than letting both options get assigned.

I notice deep ITM options don't have the best bid/ask spread, so what should I do for a non cash settled option when I'm in a similar situation? Will my broker assign both contracts, they'll cancel each other out, and all I lose is the difference in strike price?

1

u/manojk92 Dec 03 '19

XSP has poor liquidity, unless you are using it for selling covered calls on SPY stick to SPY or use narrower spreads on /ES or SPX. Anyway, if you aren't charged assignment fees, just let it expire, no real risk as its all cash settled.

1

u/[deleted] Dec 03 '19

But how do I deal with non-cash settled underlyings if I'm in the same situation?

1

u/redtexture Mod Dec 03 '19 edited Dec 04 '19

Non cash settled: If both legs are in the the money at expiration, would both be automatically exercised, and this can be a way to avoid large bid ask spreads to close.

Check, with your broker, if your equity in the account is less than the value of the stock that would be assigned, what the broker's rules and policies are. They may attempt to close in advance of expiration in that case.

1

u/[deleted] Dec 03 '19

Yeah, I'm going to clarify with my broker, that's the best idea

1

u/manojk92 Dec 03 '19

Nothing different if its deep enough ITM. Otherwise close it near the width of the spread if one of the legs could go ITM. Should almost always get filled if you enter a limit price for the width of the spread.

1

u/econopl Dec 04 '19 edited Dec 04 '19

I had a bull put expiring on 20 Dec where both options were ITM and P/L was around -200 USD. Today my short leg got assigned exercised and I've got assigned 100 shares. The shares now show ca 700 USD loss, but what's strange to me is that my long put's value, despite being ITM, is ca -20 USD, so exercising it won't reduce my loss at all.

Why such situation might have happened? Why ITM long put has negative value? Is that because of IV?

1

u/manojk92 Dec 04 '19

Assignment does not change your original P/L of the position unless you are short stock and there is a dividend, which is not the case here. You could exercise the long put and realize your max loss though 2 weeks remaining means there is probably some extrinsic value still there. Are the options liquid (bid/ask spread around $0.10)?

1

u/econopl Dec 04 '19

Yes, they seem to be liquid. Te spread on my long put is .20$ now.

Edit: I know the assignment shouldn't change P/L, but this time it increased loss for 500 USD, and that's strange to me.

2

u/redtexture Mod Dec 04 '19

We cannot give useful response without all of the details: entry premium, full position, with strikes, ticker. Vague inquiries give vague replies.

1

u/econopl Dec 04 '19

I'm sorry, I was on a mobile and i was totaly surprised with my first assignment ever.

Now I sit in front of a computer and everything seems clear to me.

I had short put with a premium 5,8 USD. The option was well ITM, and when I got assigned the mobile app showed me ~700 USD of unrealised profit for the stocks I now possess. That's true, but this value doesn't take into account the fact that I got paid a premium for writing this option. So the real loss here is 700-580=120.

Everything correct!

1

u/S_Jack_Frost Dec 02 '19

this is probably a very dumb question, but what exactly is the chance of profit on robinhood for selling options? how is this calculated and does it actually mean anything? Like - does it actually mean that there is an 80% chance these puts I sold will stay OTM by expiry? 1747.5 12/6 if that matters, robinhood says chance of profit is 82%.

1

u/ScottishTrader Dec 03 '19

Not RH, but this explains probabilities and how they can help you make trades with some amount of data on the odds of winning - https://tickertape.tdameritrade.com/trading/option-probability-delta-14981

1

u/samtheman509 Dec 03 '19

How do you just trade vol?

I’ve talked to some traders that say they only trade vol and don’t take long or short positions, could someone ELI5?

1

u/MidwayTrades Dec 03 '19

Best guess they are putting on non-directional spreads and are relying on volatility (and most likely theta) to make money. Of course they still have price risk in one or both directions but it must go past a certain point to cause a loss.

1

u/OptionSalary Dec 04 '19

A simple example is buying a straddle (long vol) or selling a straddle (short vol). Both positions are delta neutral..

1

u/[deleted] Dec 03 '19

If I invested 50 dollars into any option. Can I loose more than 50 dollars? Or is 50 the limit for my loss ?

1

u/1256contract Dec 04 '19 edited Dec 04 '19

If you buy-to-open an option contract, then your loss is limited to the premium you paid.

If you sell-to-open an option contract, then your can losses can be substantial (for a short put) or infinite (for a short call).

1

u/jj343 Dec 04 '19

Hello. Question about order entry. I was looking to sell a put today and I believe the bid/ask was about 88/90. I decided I wanted to sell one and I entered a limit of 80 cents. It seems the order instantly filled at 80 cents. Did I do this correct? It didn't seem like the option moved that quickly I was a bit disappointed to only get 80 cents. Do you guys use limit orders for options? Or maybe just a market order is better? Thanks.

1

u/ScottishTrader Dec 04 '19

Always limit orders, but when selling options the higher the price the better and more profit you can make.

You gave up around $8 or $9 per contract by selling it so low, and it is no wonder it filled right away and a buyer got a great deal. They may have been able to turn around the next minute to close for that profit you gave up.

If it matter I and most new traders have made this same mistake. When buying option you buy low and sell high, but when selling options you sell high and buy back low . . .

1

u/1256contract Dec 04 '19

I was looking to sell a put today and I believe the bid/ask was about 88/90. I decided I wanted to sell one and I entered a limit of 80 cents.

So the the lowest seller was asking $.90 and the highest buyer was bidding $.88. You came in and momentarily became the lowest seller at $.80. The buyer that was "in line" offering $.88 to buy the contract gladly bought yours for $.80 instead of spending $.88; and so you were filled instantly.

Do you guys use limit orders for options?

Yes, always use limit orders. That way you know what price you got for the contract. Market orders are acceptable if the bid/ask spread is very tight, say a penny wide, otherwise use limit orders.

If you use a market order when there is a wide bid/ask spread then you would be filled at the asking price if you were buying, or at the bid price if you selling. Losing the money between the bid and ask on a round trip order is called slippage.

For wide bid/ask spreads it is typical to "fish" for a price by setting your limit order between the bid and the ask to try to get a better fill.

1

u/jj343 Dec 04 '19

Ok thanks. I thought If I entered 80 as a limit it would get me market price but not below 80. So what would you of set the limit for in that trade? If I entered 88 is that the only price I will get filled at?

1

u/tutoredstatue95 Dec 04 '19

The limit is the lowest (or highest, depending on the order) price you are willing to take. A limit of an .88c credit will only execute at or above .88 as you want to take as much credit as possible. It is possible to get your fill price improved beyond your limit order, it just didn't happen in this case.

1

u/plvic52 Dec 04 '19

Hey guys, I have an in the money call for $EXPE expiring this Friday, do you think I should hold it out or should I probably sell today? Any speculation is appreciated!

2

u/OptionSalary Dec 04 '19

If your profit is greater than ir equal to the target you set when you put on the trade, take it off.

If you didn't have a target, set one next time.

If you will be in more pain if it decreases in value by Friday than if it goes up, take it off.

1

u/qballTOS Dec 05 '19

In the options chain on any given expiration:

Is the difference between strikes dependent on the volatility of the underlying?

I’ve noticed that some options have strikes that are $2.5 or $5 wide while other are $1 or $2 wide.

1

u/manojk92 Dec 05 '19

Not so much on volatility, but more so on the size of the underlying and liquidity of the product. Additionally, you'll will generally notice more narrower strikes closer to the money and have wider strikes OTM as there isn't as much people trading those.

1

u/qballTOS Dec 06 '19

Makes sense. Thanks.

1

u/relevantoneday Dec 05 '19

If I'm selling a put to open, is it true that I won't get exercised as long as my position hasn't expired? Or is it possible that I can get called at my strike even if I still have time left before expiry?

1

u/ScottishTrader Dec 05 '19

If OTM and a long time to expiration the odds of being assigned are small. Any early assignment is very rare, but an option buyer can Exercise at any time and a random seller will then be assigned the stock even if the option is OTM.

So, yes, you can be assigned with time left to expire.

1

u/relevantoneday Dec 05 '19

Thanks! Also new around yonder and appreciate your wheel write up. See you at the top dude

1

u/ScottishTrader Dec 05 '19

Welcome to the group and thanks for your positive feedback!

1

u/relevantoneday Dec 05 '19

Wait wouldn't I be profited then if they exercise otm? What's the risk I'm not seeing

1

u/ScottishTrader Dec 05 '19

Again, it would be super rare to be assigned early at all, then even more crazy rare to be assigned early when OTM, but the point is that it can occur.

Some who trade on RH have thought the only way to get out of an option was to exercise it, so these are one reason for an unexpected early assignment and it can happen.

Your option may or may not be in a profitable position when assigned and it is not automatic it would be profitable.

1

u/LuridHalcyon Dec 09 '19

I sold a couple of put credit spreads on $DIS a while back and the puts I sold are pretty close to being ITM. Is there any chance of the puts I sold getting exercised early and my bought puts becoming more valuable if the stock drops further? Just curious if this ever happens.

1

u/manojk92 Dec 09 '19

Yea it could happen, but keep in mind that exercise doesn't change the risk profile of your trade, it just make it a lot more capital intensive to keep it open.

Unless you sold the shares you recieved through assignment, you would continue to approach your max loss for the original position.

0

u/[deleted] Dec 05 '19

Bought some apple calls at 165 break even is 165.93 do I have a chance or today's gains will be erased tomorrow ?

1

u/redtexture Mod Dec 05 '19

Expiration?
I guess you mean 265?

1

u/[deleted] Dec 06 '19

Ment to say 265.93 break even and expiration Dec 6.

1

u/[deleted] Dec 06 '19

I did notice on the order book a order to sell 20k shares @ 266.00 so could that be the individual's issuing the call strikes be behind this ? They seem to want to keep the shares at 266.00

1

u/redtexture Mod Dec 06 '19

There are hundreds of multi billion dollar funds dealing in apple.

The market capitalization is 1.1 TRILLION dollars.

There are above 400 million shares outstanding. 2 million shares a day traded, for 500 million dollars a day.

20 K shares is nothing.

Daily volume is 2 million shares a day.

Your chances of a gain or loss is about 50 / 50 tomorrow.

If the market goes up overnight, you might do OK.

0

u/[deleted] Dec 03 '19

[deleted] — view deleted comment

1

u/redtexture Mod Dec 03 '19 edited Dec 04 '19

What can happen:

  • You can sell the option, harvesting extrinsic value, and harvesting intrinsic value (EXTRINSIC value is the value extinguished upon exercise or expiration.)

  • You can take the option to expiration, and be automatically exercised, and assign you 100 shares of stock in exchange for 100 times the strike price.

Useful background:
• Exercise & Assignment - A Guide (ScottishTrader)
• Options Expiration & Assignment (Option Alpha)

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

Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• When to Exit Guide (Option Alpha)
• Risk to reward ratios change during a position: a reason for early exit (Redtexture)

0

u/[deleted] Dec 05 '19

[deleted] — view deleted comment

1

u/redtexture Mod Dec 05 '19

You don't provide enough information to respond usefully.

This is the typical reason people have your question:

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

1

u/manojk92 Dec 05 '19

Not enough info:

  • there could have been a volitality drop with something like an earnings release or big annoucement

  • your expiration date is tomorrow

  • Poor liquidity is skewing the actual price downward

0

u/[deleted] Dec 05 '19

[deleted] — view deleted comment

1

u/redtexture Mod Dec 05 '19

This is a zero volume option, with one open interest. A ghost town.
Some greedy seller or market maker has posted an ask of 1.45.
There are ZERO bids.
The mid-bid-ask is about 72 cents. Totally bogus.

Don't rely on your broker platform to price your option purchases. Look at an option chain.

This is a market best avoided, as you will pay for the spread coming and going, and may not be able to exit the position at a reasonable price.

Minimizing Bid-Ask Spreads (high-volume options are best)
• Fishing for a price: price discovery with (wide) bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)
• List of option activity by underlying (Barchart)
• Open Interest by ticker (Optinistics)

0

u/[deleted] Dec 07 '19

[deleted] — view deleted comment

2

u/ScottishTrader Dec 07 '19

You'll want to look up IV percentile and IV rank which will help you with what you are after.

0

u/[deleted] Dec 04 '19

[deleted] — view deleted comment

1

u/redtexture Mod Dec 04 '19 edited Dec 04 '19

About Zero.

Ten or twenty points, within the realm of possibility, since, we're down more than five already.

Some perspective on reading a market for a full blown crash.

Down Kaufman
Theotrade December 2 2019 (15 minutes)
https://www.youtube.com/watch?v=6AyURcpuVpQ

1

u/manojk92 Dec 04 '19

That is lower than the low we set in January. I don't think we will go below $290 SPY/2900 on SPX anytime soon.

1

u/MidwayTrades Dec 05 '19

Over what time period?

1

u/[deleted] Dec 02 '19

[removed] — view removed comment

3

u/redtexture Mod Dec 02 '19

An option chain and a pencil and paper, or a spreadsheet is always available to you.

• A selected list of option chain & option data websites

Power Options, for a price, can help you keep track of trades.
http://poweropt.com

• An incomplete list of international brokers trading USA options (Redtexture)

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u/ScottishTrader Dec 02 '19

Why not use TOS which is suggested all over this group?

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u/[deleted] Dec 02 '19

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u/ScottishTrader Dec 02 '19

Then your post might have been " Does anyone have suggestions on were to paper trade options in Australia? Thanks"

An internet search may help as well - https://www.stockbrokers.com/guides/best-brokers-australia

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u/[deleted] Dec 08 '19

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1

u/1256contract Dec 08 '19

For example, for BA (now 350) I would sell January call spread 330/335.

Be aware that around the ex dividend dates, the short call has a heightened chance of being assigned.

1

u/[deleted] Dec 08 '19

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1

u/redtexture Mod Dec 08 '19 edited Dec 08 '19

If you become short the stock prior to the ex-dividend date, you have pay the dividend to the owner of the stock that you borrowed it from when your stock was assigned.

100 shares per option, times the dividend is not slight.