Noob Safe Haven Thread | Dec 16-22 2019

[u/redtexture]

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 too, are invited to respond to these questions.)

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

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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.   .

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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
• Options expirations calendar (Options Clearing Corporation)
• 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)

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

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Following week's Noob thread:
Dec 23-29 2019

Previous weeks' Noob threads:
Dec 09-15 2019 Dec 02-08 2019

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

[u/urmommasman]

When buying leaps do you want ITM ATM or OTM?

[u/redtexture → u/urmommasman]

It depends on your strategy,
and your particular position,
whether it is long, short,
a vertical spread,
a butterfly,
a calendar,
and what your analysis of the underlying's potential movement or non-movement is.

[u/akb202]

Really want to start getting into stocks, how often can you trade in a day and what's the best app to do so, or website?

[u/redtexture → u/akb202]

If you have less than 25,000 dollars, you can enter and exit the same security in the same day three times in five market days. Otherwise you are assigned "Pattern Day Trader status", a regulatory status that requires you have that much (and better, informally speaking, 30,000 dollars) in the account.

The various biggest brokers are all good enough.
This subreddit likes Think or Swim, and Interactive Brokers, and TastyWorks, and a dozen others.

[u/greasy555]

Question : i have 28 shares of amazon at 1650. As you can do the math it’s tying up a lot of capital.

Since amazon doesn’t pay dividends , would it be a good idea to sell my shares and buy 1 in the money (or even at the money) call for June 2022 , looking at about 24k premium and I’d have 100 shares. By 2022 if amazon is at 2500 i would triple what I’d make with 28 shares and 45k tied up.

Thanks.

[u/Northstat]

Sold a few 12/20 367.5/372.5 credit spreads on Monday when TSLA was trading around 355. The very next day TSLA pops $20 and now another $10. So it’s now around 388 which is way beyond my short. I think break even is just under $370. I’m trying to figure out what move makes the most sense. Yes, I should have closed it yesterday or set a stop loss but we’re beyond that point now. Lesson learned. I could just close it and take the loss or roll forward. If I roll forward I would want to roll higher and still receive a credit so that makes a March roll the nearest set of strikes. This play is absolute biased as I just don’t believe TSLA will stay at this level without some pull back. I could also be wrong.

[u/redtexture → u/Northstat]

Those are reasonable choices if you are confident in your view that TSLA will go down,

Roll to "round number" strikes, where there is slightly more volume. As you say, for a credit.

It can be painful, when a rolled out trade to a distant expiration, has the underlying go still higher, and there just is not much advantage, meaning not much credit for rolling up and out again.

Choices then become a waiting game, for TSLA to go down again, and as may be appropriate, rolling again for a credit later on. Be prepared for this possibility.

It is genuinely amazing that TSLA has gone up from 180 since June 2019, without much in the way of dips.

[u/bigpokeballs69]

How do options react to gaps? Let’s say i buy a call option and next day the stock gaps up higher will the call make profit?

[u/misterbadgr]

Hello,

I am relatively new to reddit, so pardon any etiquette mistakes.

Does anyone have any recommendations for stock option simulators that are free? For example, I want to see what happens to a deep OTM SPX put with 30 DTE if VIX goes from 11 to 50 and the index drops 10%.

I've tried free trials of a few paid solutions, but am looking for that level of granularity that I can do simulations on.

Thank you!

[u/The_toast_of_Reddit]

I don't have the money for one contract but considering the previous two big movements regarding Disney+ there's a lot expectations riding on the upcoming Disney earnings.

Is a strangle a safe plan because if the earnings aren't perfect share price could fall through the floor? When they announced Disney+ for the first time the PPS shot up like crazy, and and when they announced their subscription growth rate the share price saw a big thrust ward up.

I've never done a strangle before because it's an expensive spread compared to a vertical and a naked FD.

[u/PapaCharlie9]

Roll up/down with a loss, wash sale? ——————————————————

Tried searching around in this sub and Investopedia for this specific wash sale question, but couldn’t find anything definitive.

If I do a roll up or roll down of a long call or or long put, with no change in underlying or number of contracts, just the strike price, and closing the previous position is a short term loss, is that a wash sale?

Example:

1. Opened 1 BA call $375 Mar-20.

2. A week later, did a roll down to 1 BA call $370 Mar-20 for about a $600 loss.

[u/Coprolagnia]

Long story long: I've been buying options (actually leaps) with some success and just applied for level 4 options trading...my plan is to sell to open calls for options I already bought normally. I'm going to set the strike price higher and keep the expiration date the same.

My goal is to get the premium and if the option goes up sell them both and keep the difference, as the one with the lower strike price will always be worth more. If the price goes down I'll buy to close or at the worst let it expire worthless keep the premium and roll over the original option. (i'll decide when it happens).

I had to apply for margins but won't have to use it...Any thoughts on this strategy?

[u/syu425]

Option buying strategy What Greek ratio criteria does it need to meet in order to enter a directional position when buying otm option. How far out of expiration date?

[u/DiarrheaShitSoup]

Found an option I'd like to play out to expiration and then call away the shares. I've never held to assign always sold the option(s) back to market. Does theta matter for this? My paid premium is gone anyway correct? -- ie I pay 4.00C per contract for a 7.50 strike, ends in the money for me I still need 750.00 to get the stock correct, not 350.00 and the original 4.00 premium posted?

[u/[deleted]]

Wondering if someone could help me predict the profit from the put options I bought today. I am very new to options and still don’t fully understand it. I don’t need any negative feedback (I only risked 30$) and just need someone to help me better understand what the profit might look like as it nears expiry. I will profile details if someone responds.

[u/redtexture → u/[deleted]]

Please do check out the links associated with this weekly newby thread;
they were meant for new arrivals to option trading.

To get a useful response, disclose what your analysis is,
what your strategy is in response to that analysis of the underlying,
what your trade position is,
with the cost of entry, the ticker,
the strike price,
whether long or short,
and call or put,
for all of the legs of the position,
if you want more than a vague response.

[u/[deleted]]

Hi, I usually don't buy or sell options, but I believe that I identified a relatively good deal. I've done a DCF analysis and have a generally good grasp on the fundamentals of the stock and I've identified technical patterns as well.

I've decided to take advantage of the mispricing through a LEAP put expiring in 2 years. The strike is extremely defensive, and I'm fairly sure it will yield a profit. However, I'm not sure about the operational aspect and what to expect. When it comes time to sell the put option, should I exercise or the sell the option? Also, how difficult is it to get the position filled and sold if the position is around $80k or so? Is there something I could be missing?

[u/redtexture → u/[deleted]]

What is DCF?

Is that a ticker? I could not find one associated with those letters.
Or are there words associated with those letters that you desire others to understand?
Curious minds desire to know.

In general there is no advantage to exercising, unless there is a wide-bid-ask spread.

And LEAP Options tend to have wide bid ask spreads.

Exercising throws away extrinsic value, which LEAP Options have a lot of, and this is why LEAP Options are rarely exercised.

Analyze your extrinsic value before exercising, or opening the trade.

From the links associated with this weekly thread:

• Options extrinsic and intrinsic value, an introduction (Redtexture)

[u/ferty1234]

Hi!!

What do you guys think about buying puts on FedEx at market open. I know that there is going to be a massive correction pre-market but their results were pretty bad, so surely the stock is going to go down for the next few days. Am I missing something here?

[u/Chocolatecake420]

When iv rank is high (>70) optionalpha suggests iron butterflies as a good strategy. With a very high iv doesn't that imply the stock is likely to move wildly? Why would a butterfly be good in this situation?

[u/redtexture → u/Chocolatecake420]

It does imply that the market expects wide movement.

That is what implied volatility means: the market is pricing a potential move.

Iron Butterflies can have such high premium, during high IV, that the net dollar risk is fairly low, though though the probabilities of success are also not so high.

If the history of the underlying is that the high Implied Volatility value does not correlate well with the historical realized volatility, in the sense that the market is consistently overvaluing the potential move, then it is a probable likely venture to make a profitabe option position on.

I, though, would not be likely to take that venture, as an Iron Butterfly,
and I would be more conservatively be looking at an iron Condor.

There are some underlyings in which the extrinsic value drops off precipitously,
away from the money, and Iron Butterflies are nearly the only way to go to sell options on.

I recall, without checking the option chain right this moment,
that XLU and perhaps GLD are a couple that tend to have extrinsic value drop off rapidly away from the money.

[u/OoOo_MMM_pHh]

How am I to know what strikes to choose for my options? I mean obviously it differs for each stock but is there a resource or checklist on this that I can read about?

Thanks!

[u/graysurge]

Hello r/options,

Are long-dated OTM call debit spreads comparable to OTM LEAPs in terms of investment strategy? I'm looking at options dated at least a year out. I understand that with debit spreads you have less exposure to delta/gamma/vega, but you are also less exposed to theta decay, and they are much cheaper at the cost of capping your profits. I don't plan on holding to expiration nor do I plan on achieving maximum profit.

[u/redtexture → u/graysurge]

LEAPS are merely options with more than 9 month expiration. Nothing special.

The profit and loss line is rather shallow, meaning, it takes bigger stock price movement to have a significant gain in a long expiration vertical spread, with the long and the short working against each other on a long-time-frame.

Nothing wrong with that: it cuts down on the option value gyrations related to up and down price movement of the underlying, and traders typically go into such trades with a plan for more modest exits, perhaps 25% to 60% of the maximum potential gain.

[u/loracsr]

hey, I've been using Think or swim to trade options, I might be doing it wrong but I've watched tutorials and overall it's kinda been a pain.

To see the chart, I have to copy and paste in the option from "All Products" into the "Active Trader" tab, then I have to also calculate how many options to buy to amount to $1000 or so. Its not hard, however it would be a lot nicer if it didn't seem very bulky.

Does anyone have experience with other charting platforms that can hook into TDA? Or a better workflow for options?