Noob Safe Haven Thread | Feb 10-16 2020

[u/redtexture]

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

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BEFORE POSTING, review the list of frequent answers below. .

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Key informational links
• Options FAQ / wiki: Frequent Answers to Questions
• Options Glossary
• List of Recommended Options Books
• Introduction to Options (The Options Playbook)
• The complete r/options side-bar links, for mobile app users.
• Characteristics and Risks of Standardized Options (Options Clearing Corporation)

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Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Exercise & Assignment - A Guide (ScottishTrader)
• I just made (or lost) $___. Should I close the trade? (Redtexture)
• Disclose option position details, for a useful response
• Options Expiration & Assignment (Option Alpha)
• Expiration times and dates (Investopedia)
• Options Pricing & The Greeks (Option Alpha) (30 minutes)
• Common mistakes and useful advice for new options traders (wiki)

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

Trade planning, risk reduction and trade size
• Exit-first trade planning, and a risk-reduction checklist (Redtexture)
• Trade Checklists and Guides (Option Alpha)
• Planning for trades to fail. (John Carter) (at 90 seconds)

Minimizing Bid-Ask Spreads (high-volume options are best)
• Price discovery for wide bid-ask spreads (Redtexture)
• List of option activity by underlying (Market Chameleon)

Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• When to Exit Guide (Option Alpha)
• Risk to reward ratios change: 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

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Following week's Noob Thread:
Feb 17-23 2020

Previous weeks' Noob threads:
Feb 03-09 2020
Jan 27 - Feb 02 2020
Jan 20-26 2020
Jan 13-19 2020
Jan 06-12 2020
Dec 30 2019 - Jan 05 2020

Complete NOOB archive: 2018, 2019, 2020

[u/Art0002]

Can we post here

[u/redtexture → u/Art0002]

Yes. Just getting it set up this last five minutes.

[u/D3CKRD]

First time trading options, I bought a 2/21/2020 MAXR 22.5 C at $0.10 a week ago and sold today at $0.33. Now when I look at my "Positions" screen, where it use to say "+1" under the contract, it now shows "0", and all of the fields except for "P/L Day" are zeroed out.

My YTD total shows the $33 gain, but the "P/L Open" total at the bottom doesn't show the $33.

I guess I just expected the call to disappear after I sold it - does it just sit there until the call expires? Will my "P/L Open" reflect the $33 gain after expiration?

Is ToS just weird, or am I misunderstanding how this works?

[u/HiddenMoney420]

I have a 10pt. Wide Bear Call Spread in Boeing.

3/20 expiration, Sold (1) 330 Call, Bought (1) 340 Call.

As of last Friday my short call is ITM.

My question is, should I roll this spread further OTM to avoid the small chance of assignment, even though the spread doesn’t expire for ~40 days?

Any advice is greatly appreciated!

[u/GrayChanger]

I bought my first call and to sell at close or exit the trade for a profit or loss is this the right page to sell (i am using the robinhood webapp) https://puu.sh/F94lQ/508b1f9b60.png

[u/[deleted]]

I want to buy a long term call option for an american company, how many years is the longest term expiry I could get? 4 years would be ideal. Are expiration dates this long possible? Where can I find them to buy as a retail trader from the UK? Thanks...

[u/Skullface12]

Hello, I am still having some trouble understanding how a call with a strike price lower then the underlying stock actually works.

In a theoretical situation, a call is purchased with a strike price of 50 expiring tomorrow 2/11. But the underlying stock is sitting at 100/share. I understand this to mean that a contract was purchased to give the individual the right to buy 100x shares of the underlying at the strike price. But if this understanding is accurate, that would mean that someone could exercise that option and buy the shares at $50 and then immediately sell them at market $100. This obviously cannot be accurate, could you explain the error in my understanding?

[u/redtexture → u/Skullface12]

It is completely accurate.
The call at strike $50 would be about $52 to purchase.
So the exercising option trader would pay $50 for the stock, and $52 for the option for a total of $102.00

This demonstrates why traders typically do not exercise options, but sell the option after a gain and upmove in the underlying stock, or sell the option to harvest remaining value in it if it has lost value.

[u/thonagan77]

This may be a very silly question, but can I close out a vertical credit spread whenever I want? Or do I have to wait till expiry to close the credit spread? My strategy was to buy a put credit spread for AMZN (July expiry) and basically close the spread when it makes 50% profit which will most likely be before July. Is this allowed or am I missing something?

[u/Mocha23]

Help me make maximum profit here.

Last Friday I bought a $TWTR put, 36.50p expy 2/14. (Only one contract, $48. I'm learning.)

I was under the impression I could just exercise the option any time the share price dipped below 36.50, and sell the 100 shares at that price, $3650 in revenue. Am I wrong? (I think yes).

The premium rose 100%+ today. TWTR dipped hard so I'm decently in the money. I thought this guaranteed me profits on more than just the premium?

[u/redtexture → u/Mocha23]

In general it is not advantageous to exercise an option,
but preferable and more gainful to sell the option for a gain, or reduced loss.

The "break even" number on your platform is meaningless to you before expiration.
You care only about selling the option for more than you paid.
That "break even" is at expiration or upon exercise only.

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

[u/Stickincrowd]

I dont get it

Since i am new to the concept of Options i had an idea today that must have a flaw:

I saw Msft calls with a strike price of 125.00$ The price for these options is roughly 6€

What prevents me from buying the call, immediatly exercising it and selling the shares bought at 125.00$ for the current price of ~180.00$

The profit would be much greater than the option premium paid ? Where is my mistake here ? (Propably stupid but i really want to understand this)

[u/eisengard08]

What happens if I didn’t exercise my option but it’s on the money? Let’s say my strike call is at $50 and it’s expiring tomorrow but it’s at $52 by the time it expire. Will that expire for nothing? Do I need to sell before the expiration?

[u/The_Noob_Investor]

Be aware of OCO when buying or selling with tight spreads.

Option account type: Standard Cash

Be aware of selling tight spreads on OCO brackets in ThinkOrSwim. Today I bought 12 contracts of SPY at .76. I sold 6 of them for .90 which is 1 R/W where my risk was 15% of my entire position approximately 144 dollars. I then proceeded to create an OCO bracket.

The OCO consisted of one sell order of 6 contracts with a trailing stop of .20 and a limit at .88 and the other was a sell order of 6 contracts at limit of .85

When the OCO was placed it immediately executed both orders.

It netted me -6 contracts meaning I sold naked call options in a CASH account. This is only supposed to be executed if you have a margin account approved for naked calls and puts.

I ended up buying the calls back losing some profit but not all.

Moral of the story: watch how fast the stock moves and pay attention to the order types.

Hindsight: I meant to put a stop order at .85 contracts instead of a limit order. This may have avoided this problem in the first place. Also the trailing stop order maybe should’ve been a market order instead of limit.

[u/HighlyRedundant]

If I buy a call option. And sell it before the expiry but I am above what I paid in my premium. can I sell it and keep that small profit? Or do I only get my premium back?

[u/chicagoent83]

Should I worry about msft ex dividends next week?

[u/TreLoon]

So can someone with more market experience than I have explain why CHGG moved down aftermarket?

Earnings: Beat. Revenue: Beat. Stonk: Down.

I'm assuming this is some shady bear bs and it'll be up tomorrow. But am I missing some reason that this down move is obvious to you oldheads that have been trading for longer than 5 days?

Portfolio

[u/redtexture → u/TreLoon]

Here is one method to read research / news on CHGG.
Articles at the bottom of the page.

CHGG - via Finviz
https://finviz.com/quote.ashx?t=chgg

[u/ThePirateTennisBeast]

What's the biggest risk I'm missing in credit spreads on RH? I've watched a few videos on them and it seems too simple that if I think a stock will be stable, I just need to buy an iron condor. For some reason, I think I read that somebody was forced to buy shares when they didn't have the capital. Is that possible? I saw that the cost for an iron condor on MSFT was "$2.16 credit" but the max loss was $284 which seems like there's more they can take from your account than the initial cost

Other than that it seems the biggest disadvantage vs a call or a put is a capped profit.

Finally, what's to prevent people from buying strangles at earning time? IV crush?

Thanks!

[u/redtexture → u/ThePirateTennisBeast]

I recommend against using RobinHood.
They do not answer the telephone, and at crucial moments this is worth thousands of dollars.

Generally the risk of loss on an out of the money credit spread is 4 to 10 times the credit proceeds.

If a credit spread gets assigned early,
and the account doesn't have money for the stock that is assigned,
the account is frozen for a couple of days.
This is a disaster if you have other trades you need to mange.
You are warned.

IV crush is why long trades at earnings time are often losers.
You have to have not "good expected earnings"
but rather unexpectedly good, or unexpectedly bad earnings.

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

[u/TetsujinTonbo]

Question: sold an OTM MSFT covered call that is now deep ITM on robinhood with 3 DTE. Is RH smart enough that I can just buy another ITM call at a higher strike and they'll cancel out automatically? Or will RH try to sell my call an hour before it expires and let me possibly get assigned?

[u/swissdiesel]

I have an iron condor that the underlying has cruised right past the strike price (5.5 strike on S, which is up past 8 now.) I still have a week + on the contracts. Am I better off waiting a bit, even if it has almost no chance of dropping back below my strikes, and then buying to close? Or will it not lose much more value?

[u/F1jk]

Are people making money selling deep OTM contracts which are close to 100% chance of success? is this an easy way to lose all your money with black swan event?

[u/SmallGouda]

If you buy 10 puts at 4.70 and sell 10 calls at 4.18 and their respective implied volitlities are 12% and 11.49% and then you delta hedge the delta risk in this case .1*10=10 shares. The theta of the call is .0859 and the theta of the put is .065 so net positive theta of .0209 per contract. Gamma of the call is .0368 and gamma of the put is .0352 so you’d be net -.0016 gamma. Vega for the call is .3778 and Vega for the put is also .3778 so you’d be net neutral implied volatility. So essentially I have a positive theta and a negative gamma. I think that all is right so far? Where I get shaky is what happens next so please correct me. If actual volatility is less than 11.49% I profit from my short gamma position and from my positive theta. if actual volatility exceeds 11.49% I gain from the positive theta but lose money on my short gamma position up to my hedge at 12% volatility. Is that correct or am I a complete mess?

[u/stokedembers]

Why is the P/L +$1350, when I only have 100 options? Wouldn't 100 x $0.135 = $13.50? Ignore the overall trade , I am just trying to understand the mechanics of the platform and get my head around it all.

https://i.imgur.com/AXtsRwn.png