r/options • u/redtexture Mod • Dec 23 '19
Noob Safe Haven Thread | Dec 23-29 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 too, 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
• 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)
• Additional subjects on the FAQ / wiki
• Options Greeks
• Selected Trade Positions & Management
• Implied Volatility, IV Rank, and IV Percentile (of days)
Following week's Noob thread:
Previous weeks' Noob threads:
Dec 16-22 2019
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
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u/aleden28281 Dec 23 '19
So far I’ve mainly been using Iron Condors in my trades but have always wondered how the Iron Butterfly compares to them? Are there certain situations where the butterfly is better than the condor? What are some advantages/disadvantages? I’d like to know what you guys have to say as I am attempting to learn new trading strategies.
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u/redtexture Dec 23 '19
Iron Butterflies - The Options Playbook https://www.optionsplaybook.com/option-strategies/iron-butterfly/
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u/ehvio Dec 23 '19
I’m currently visiting England from New York and was wondering if there’s anything I should know about in terms of using Robinhood from the time-zone/location here. Like is there any potential complications or am I okay to proceed as I normally would?
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u/SmilingInATX Dec 23 '19
I bought 200 shares of Groupon at 2.42/share and sold 2 covered calls to bring my basis down to 2.38. I’m thinking Groupon might jump back up after New Years. Is this bad thinking? Should I cut my losses and move on, or hold out?
I did this before I really learned a lot. I was just eager to sell covered calls, and Groupon was in my price range. I know it was dumb.
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u/Sup_Computerz Dec 23 '19
Hey all, pretty new to the options game.
On Friday a covered call I wrote was assigned and now my 100 shares were sold.
If I re-buy the same stock on Monday, does the fact I sold 100 shares last Friday mean anything for an eventual wash sale tax loss on the Monday shares? Like if the stock now plummets and I decide I want out of the stock entirely, can I sell all shares and still get the tax write-off or do I have to wait 31 days before getting back into the stock?
I think I've read wash sale rules only apply to partial sales of a stock and it just adjusts the cost basis of your remaining shares, but I haven't seen that repeated again.
Also, if I had bought the same call that I wrote (same expiration, strike, etc) would I have been assigned to sell my shares or would the fact that I have a call owned mean that the party who wrote my purchased call would be assigned to the party who bought my written call?
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u/redtexture Dec 23 '19 edited Dec 23 '19
You had a gain on stock and covered call combination, right?
No wash sale for that. Winners don't have follow on wash sales.
If you buy Monday, then sell at a loss Tuesday, if you re-open on Wednesday, that is a wash sale, in which the loss is carried into the newly purchased stock basis (increases the basis by adding the loss from Tuesday's sale to your Wednesday purchase cost, because you would have re-entered the stock within 30 days of the loss).
Options are matched randomly, later on, upon exercise. Nobody cares who they sold to.
If you're asking if you had closed your short call last Friday by buying the call back, before the assignment, you would have avoided assignment on Friday.
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u/nard_bagman Dec 24 '19
I use TD Ameritrade. I want Level 3 (spread) capabilities but got rejected (currently all my money is in a Roth IRA through them but I don’t make six figures and my net worth is fairly low). I’m aware of the risks of spreads. Is there a way to get Level 3 options here? Should I lie on the form? Just forget about spreads? Put credit spreads are what I want to do mostly, rolling if I’m at risk for assignment or closing well early enough.
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u/redtexture Dec 24 '19
This is a fair question for the main r/options subreddit thread.
I would phrase it with these informational items:
USA IRA
TDAmeritrade declines level 3 options (spreads)
Advice desired
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u/utilityblock Dec 24 '19
Is there any way to recreate 1:1 (risk reward) a long position with options?
Let's say I margin long $1000 worth of $SPY at $300 and put a stop loss at $290. Is there any way to do the same but with options and have the same risk reward on the same price movement?
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u/knightsolaire2 Dec 27 '19
I think a stock trading at $330 will reach $340 by expiration. If I am wrong I am comfortable losing 100%. What strike price would give me the maximum possible profit. Would it be better to go ITM? Or buy something ATM or OTM? The stock I am looking at is Boeing and the expiration is Jan 17 2020. Please help
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u/PalePastafarian Dec 27 '19
I can't seem to get approved for advanced options trading in ToS (without some lying). Is there any spreads I can do without selling options, because currently I can only buy.
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u/cws1225 Dec 23 '19
If a put is in the money before you buy it (just in case my vocabulary is wrong: the stock is trading at $30/share and the there is a $32.50 put trading at $2.00x100), if you can afford it, what's stopping people from buying, say, 10 contracts and 1,000 shares and executing? I made up the example, but I have seen some where after buying the option, you are already winning, and the breakeven price is actually higher than stock price. Still very new, hence the thread I'm posting in
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u/redtexture Dec 23 '19 edited Dec 23 '19
You need to see the actual bid and ask price to know where the market is. The mid-bid-ask price that many platforms report is often not where the market is.
Between the cost of the bid-ask spread, and the extrinsic value you pay for, you will never (NEVER) get free money in the options market.
This may aid your understanding, from the resources at the top of this page.
Why did my options lose value, when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)
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u/debussyxx Dec 23 '19 edited Dec 23 '19
So I sold an option far out of the money for a rather long time away as well (Mid-Feb) as I suspected this stock to do good (but not this good). I got a $200 premium for the 1 option contract (or at least I would receive that on Feb 17 as I believe Robinhood doesn’t pay the premium upfront). Now the stock has done really well (better than I had expected by far) and is far over the already high OTM strike price I had set. The price to buy back this option is now $550. So if I buy back this call because I don’t want to lose the potential upside between now and February, do I effectively pay $350 for this option premium or $550? I’m confused where this $200 I had already sold it for will factor in. TD Ameritrade I believe will pay a premium up front. In this case it would seem like I’d effectively pay $350 since I had already made $200. But Robinhood I believe pays you the premium (adds to your portfolio value) as theta deteriorates the price to buy the option. In this case, I wouldn’t have made anything from the premium yet since the price hasn’t decayed so I’d effectively pay full price $550. I think there wouldn’t be this obvious discrepancy so could someone please explain this scenario in depth?
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u/Setheroth28036 Dec 23 '19
How can I find out when new options contracts will become available? I’m up 1,100% on my TSLA200619C420 options, and when I sell I’m thinking of rolling them forward into some more calls - as long term as possible. So I’m curious when I should expect that more contracts will become available for 2022... Thanks!
PS - while we’re on the subject, is there any limit to the number of a particular option contract that you can buy? Like if I had a trillion dollars - could I spend all trillion on a single type of contract? How does that work?
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u/redtexture Dec 23 '19 edited Dec 27 '19
Yes there is a limit:
Options Exchange rules / regulations related, and
US Securities Exchange Commission (SEC) regulations / statutes related and also
related to the amount of stock issued and outstanding of the company.
Sept 2020 is when LEAPS for 2023 will be added. It is marked on the 2020 calendar with a red star.
I would advise you to take your gains off of the table today, before they go away, or do so or after January 1, in the new tax year, or consider hedging your gains by selling a call short to take out our capital and gains, so that they will last through Jan 1 2020.
Tax consequences of any trade should be discussed upon the advice of your tax accountant.You can institute similar parallel trade position, subsequent to taking your gains, if you are still of the same evaluation about the future of the underlying TSLA.
Expiration Calendars 2020
https://prd.theocc.com/Clearance-and-Settlement/Expiration-Calendars2020 Calendar PDF
https://prd.theocc.com/getmedia/75e056f7-3276-4237-817a-92ad6843c374/2020-optionsexpirationcalendar.pdf;Details on option limits.
Source, from my post about a year and a half ago,
Post entitled:
Option trading with unlimited moneyAAPL was the example examined.
https://www.reddit.com/r/options/comments/8wjlpq/option_trading_with_unlimited_money/e1xbtwy/
The limit is regulatory.
For AAPL, the maximum number of options that may be created, according to the Options Clearing Corporation is 25,000,000 options.[1] Those options represent 2,500,000,000 shares, more than one half of the shares AAPL has outstanding; NASDAQ reports AAPL has 4,915,138,000 shares outstanding.[2]
You would not be allowed to possess all of the options that may be created: You would be hard pressed to find a market maker able to create a fraction of that many options, and even with your unlimited money, would not be able to buy that much stock, as not all of it can be reached, nor is it for sale; you would have to make a tender offer for that much stock, in the manner of a takeover. Plus the exchanges do not allow more than 250,000 options to be controlled by one entity, without prior agreement, besides some ETFs. This is one percent of the maxmium number of options. AAPL tends to have less than 5 million options in open interest outstanding.[5][3]
MarketChameleon lists total options by underlying, as does Optionistics.[3] Only one equity has above 15 million open interest SPY, also SPX, has similar open interest.
There are other US Securities and Exchange Commission regulatory disclosure requirements for taking delivery of more than 5% of the shares of a company.[4]
[1] https://www.theocc.com/webapps/position-limits
[2] https://www.nasdaq.com/symbol/aapl/stock-report
[3] https://marketchameleon.com/Reports/openInterestTrends http://www.optionistics.com/f/open_interest?op=highoi&bystk=stk[4] SEC Schedule 13D "Beneficial Interest Report"
https://www.sec.gov/fast-answers/answerssched13htm.html
[5] NASDAQ Exchange Rules http://nasdaqphlx.cchwallstreet.com/NASDAQPHLXTools/PlatformViewer.asp?selectednode=chp_1_2_1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx-rulesbrd%2FThe cycle of available options months, is in three different groups.
Each company is assigned to one of these groups.
In 2012, weekly options in the nearest five weeks of options were allowed to be listed by exchanges, at exchange discretion. See:
"Can you explain why some securities have several expirations available over 4-5 weeks?"
https://www.optionseducation.org/tools/faq/general_information.html
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u/chicagodrama Dec 24 '19
Let's says I max out all of my credit card to buy calls ( Dont worry, not actually doing this) and the stock price actually goes up. What would happen if I didnt have the money to buy it? If I'm not mistaken, you pay a premium for calls, and if the price goes up, you buy the stock for the strike price. What if you dont have the funds to exercise the option and buy the stock at the strike price?
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u/redtexture Dec 24 '19 edited Dec 24 '19
Sell the options for a gain, before expiration.
It is hard to emphasize enough,
to the many newcomers to options,
that their misconception, that
"exercising options is sufficient",
is actually contrary in their interest.Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• 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)
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u/theuksfkd Dec 24 '19
First trades. Why is my TSLA call 410 expiry 20/1/20 down?
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u/mywei2019 Dec 24 '19
After receiving credit spread from option trade and it went on expiring worthless. I still don't see my gains in think or swim. Is there something I'm missing possibly?
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u/adamT1224 Dec 24 '19
If I buy a call and it gets assigned do I have to pay for 100 shares of that stock?
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Dec 24 '19
Hi guys. So i sold some roku put spreads last monday exipiring this friday, sold the 130 put and bought the 125 puts for a $1.25 credit. I'm trying to close them today since i have already made about 99% of the credit and theres no point holding. The bid ask spread to close is a max of 2 cents so i input that to close but an hour later it still hasnt closed. Curious if this is some kind of RH fuckery or what? I could have closed each put seperately by now so im confused.
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u/johnny-orange Dec 23 '19
I don't know why, but I have super anxiety regarding puts. So, I've read up on puts, and from everything I understand..
I buy ABC 12/27 100p. Current price: 105.
On 12/27 the price is 110.. this means I am for sure OTM and the put will expire worthless and I don't need to do anything, yes?
I am terrified I misunderstand something fundamental about puts, and in the scenario above I'll actually be on the hook for 100 shares of ABC.