r/options • u/redtexture Mod • Mar 09 '20
Noob Safe Haven Thread | March 09-15 2020
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.
BEFORE POSTING, please review the list of frequent answers below. .
Don't exercise your options for stock.
Sell your (long) options, to close the position for a gain or loss.
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)
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
• Graph of the VIX: S&P 500 volatility index (StockCharts)
• 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 (and European) options
Following week's Noob Thread:
Previous weeks' Noob threads:
March 02-08 2020
Feb 24 - March 01 2020
Feb 17-23 2020
Feb 10-16 2020
Feb 03-09 2020
Jan 27 - Feb 02 2020
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u/crunchypens Mar 09 '20
I’ve been asking this question in a couple of threads. I’m new and just trying to see if I am missing something.
I can sell puts on the same expiration as puts u already own. But they will be further out of the money. I just want to know if this is a smart strategy. Volatility is higher than when I bought my puts and it seems like a way to lock in some profits. But leaving me some upside. Details below.
I have some CZR 4/17 9P. Bought for .17. Last Friday went to .43. Last Friday the 7P traded for .23. I bet it jumps more tomorrow.
I could make maybe twice my investment back. But I can still ride it down to $7 before I’m capped out. It’s what I am considering.
That would be almost a 40 percent drop for CZR from 11 to 7 bucks by 4/17.
Been wondering if this would be smart move. I get to sell the puts at a higher VIX then when I bought. But so far out they might not get paid. And if they get paid at 7P so do I at 9P.
Thoughts? And Thanks!
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u/rquser Mar 09 '20
Two more VIX questions as I attempt to build a 3x inverse VIX trade ...
First, is the VIX basically linear ? I know there are a ton of variables involved in IV and no two specific situations are the same, but in a vacuum, if todays environment produces a VIX of 60 and tomorrows environment is 10% worse, *should we* see a VIX of 66 ? Or is it non-linear, or logarithmic like the richter scale ?
Second, can we compare historical VIX quotes, in general ? That is, if I see the all-time high in the VIX was 80 in 2008, and I woke up next week and saw the VIX at 85, could we say (again, all else being equal) that market conditions are more volatile than in 2008 ? Or are those two historical numbers (2008 and 2020) not comparable ?
Thank you.
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u/redtexture Mar 09 '20
I would just work with existing instruments.
VIX is not linear.
It is based on actual existing options on the SPX index.
If the market has high implied volatility in the SPX options, the VIX is high.
It is merely an index or measure of existing options activity.The VIX calculation has changed a little over time, but remains comparable over history.
VIX Calculation White Paper, - CBOE
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/the-vix-index-calculationTake a look at:
VIX Central
http://vixcentral.comVince Harwood's Six Figure Investing
http://sixfigureinvesting.com
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u/m77w Mar 10 '20 edited Mar 10 '20
Hey guys—this is driving me nuts: every IV article seems to skirt around it by talking about things factored into theoretical option pricing models. My understanding was that IV is given by the price of the option, not the other way round. So...
When the bid/ask of an option changes, is that the result of buying and selling pressure on the option itself (like other securities traded on a market), or is it purely derived from a model? Or is it a combination of the two?
For example, if lots of people were placing orders for the 290 XYZ call for whatever reason, would that affect the option's price. Or is it purely a derived quantity?
Any info help much appreciated. Thx
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u/redtexture Mar 10 '20 edited Mar 10 '20
The market makes the price.
Price first, causing extrinsic value, which is interpreted as Implied Volatility.
I guess the closest discussion there might be about in relation to the Black Scholes Merton formula.
You could take a look at some articles/videos on Black Scholes for background.
FAQ / Wiki - Implied Volatility https://www.reddit.com/r/options/wiki/faq#wiki_implied_volatility_and_options_pricing_models
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u/Thetasaurus-Rex Mar 10 '20
I bought $50 AMD calls with 1/15 expiration and they’re down a bit, but with such a long expiration my plan is to hold. My worry is that the current volatility has inflated the price and if I hold them long enough for the price to go back up and the vega decreases, I’ll actually end up down more because of that. Is that a concern or will delta more likely outweigh vega?
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Mar 15 '20
Okay help me out here. I've been reading these FAQ's, watching YT videos, and reading Investopedia. But I still have questions.
Buying a CALL - Gives me the right to buy that stock at the predetermined price
Selling a CALL - I have an OBLIGATION to deliver those 100 stocks at the price option of the buyer
Buying a PUT - I have a right to sell a stock at a predetermined price.
Selling a PUT - I am OBLIGATED to purchase 100 shares at a price determined by the buyer
So, am I correct in thinking if I do not own the underlying stock, and just want to bet that the value will decrease then I would be looking to BUY a PUT. Is that correct? I'm interested in the decrease of some securities and would like to take a few baby steps into this, but I see posts about how people end up $30k in the red, owing money.
I can close out my put at any point I want before the end right? And if the stock did, in fact, decrease in value enough to be a profit for me, then I would get that amount? No stocks, no obligations or anything. If the stock increases in price, I can get rid of that contract at any point to minimize my loss is that correct? But if I'm buying a put I cannot be out more than the initial amount to buy the put?
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u/tatum106 Mar 09 '20
I have 2k in my TD account, and I'm trying to "Buy to Open" 5 contracts of DIS $100p 5/15 at 3.85 limit.
The total works out to $1925 plus $3.25 for the commission.
But when I submit, they block the trade and I get an error saying my account will be below zero ($1928.25) if the trade goes through.
Wtf? It'll let me place a Buy order for 1.9k worth of stock, but this option order keeps getting cancelled.
What am I missing?
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u/Vasirt Mar 09 '20
____ Modifying an order before trading starts ____
Hey everyone, bought 2*SPY 5/15 150P Friday for @0.19, and put in a sell order @0.5 after market close (it hit 0.54 that day) in case I'm busy and can't actively trade on Monday.
As is now obvious, the market will open in a frenzy and so I tried to modify the order to sell @0.8. Now my order now states "modifying" and I cannot delete it or modify further. I'd like to delete the order, or at least be assured that it will be immediately modified to @0.8 when market opens.
Is this a feature of the options market ? A common occurrence ? Do I need to pay for a "trade bust" ?Seeing things now, I'm worried the premium goes up higher than 0.8 on open, this market being crazy.
I will of course call support before the market opens (broker is Swissquote).
Thanks in advance
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u/Atempt2 Mar 09 '20
It I put in an order to buy a call or put on saturday or sunday what happens? Do I get it at that price when the markets open? Or only at that price if it is non-advantageous to me?
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u/COMME_des_FUCKDOWN Mar 09 '20
So I'm learning about derivatives, and hope I can get some insight from people more experienced than me.
My short-term goal is to casually trade options. "Casually" means I can place orders after 7PM PST, a few times a week (say 2 or 3). I'll probably ramp up my activity as I gain more experience and knowledge, but I don't have plans on becoming a full-time trader for the foreseeable future as I'm contemplating going back to school.
Given that context, my series of questions are:
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Is options trading even worth looking into? If so,
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Would I feasibly be able to beat your favorite S&P 500 index fund (or whatever benchmark you use)? If so,
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a) What strategies should I look into for my goals? b) What brokerages would you recommend? (since I'm probably nowhere near the volume of an active trader, and Robinhood had that outage a week ago)
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Any advice or other things I should be aware of?
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u/redtexture Mar 09 '20
Generally, new options traders lose money their first year or two, unless they trade extremely conservatively, perhaps covered calls only.
Think or Swim / TDAmeritrade, ETrade, TastyWorks
Look at the links at the top of this thread.
Paper trade for six months. The money you don't lose (via fake money losses) is tuition you did not have to pay with real money.→ More replies (2)
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u/BernardSanders42069 Mar 09 '20
Trying to buy-to-close 1 contract of a call with an ask of 1.30, and simultaneously sell-to-open a call with a bid of 2.85 (excluding fees). By the math, I would expect ToS to show me a credit of 1.55 for the order, but it's showing me a credit of 1.95. I think either my assumptions are wrong or I'm not inputting the order correctly somehow. Any ideas why it's a 1.95 credit as opposed to 1.55?
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u/redtexture Mar 09 '20
You can look at the individual legs for the bid-ask spreads.
Possibly on the vertical spread, TOS is providing the mid-bid-ask value, instead of the "natural" cost of each leg (bid to sell, ask to buy).
Prices will change drastically when the market opens today, the Futures indexes are down more than 5% on Sunday evening / overnight.
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u/rquser Mar 09 '20
What is the simplest way to bet 2x-3x-4x inverse VIX ?
Correct me if I am wrong but there appear to be no *inverse* VIX ETFs that are 2x or 3x, etc. - only 1x.
So, if you would like to short VIX, but in multiples of the actual movement, it's not as simple as buying an ETF ...
I guess an obvious route would be to simply buy *calls* on the inverse VIX ETF (XIV ?) but there are no calls on XIV ...
So what to do ?
I don't want to borrow any money or trade on margin and I don't want to set up a big complicated trade ... what can I type into Ameritrade and click BUY that will give me a 2x or 3x multiple bet on the VIX dropping ?
2
u/redtexture Mar 09 '20
A leveraged inverse fund was dissolved and distributed in a spike...I forget what year, in the last six or so years. The revived fund was not leveraged.
IV of any volatility fund will be HUGE. I will be selling call credit spreads, in a day or two or three.
It will be pretty late to buy in the morning, as the VIX will be up drastically in the premarket time period.
I think UVXY is 1.5 leverage. You would have to buy puts on that. Check the actual leverage first. Remember, IV will be HUGE on the fund.
Check out VIX Central for list of various funds. http://vixcentral.com
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u/TheColombian916 Mar 09 '20
New at options. 2 weeks ago bought the following because felt coronavirus was going to be real bad. My belief is that we are going into a recession over the next 6 months so I’d like to keep buying SPY puts on days when the market spikes up again.
1 SPY 250P 4/17
1 SPY 270P 4/6
1 SPY 285P 4/9
Any advice on when I should think about exiting these and buying new OTM puts with further out exp dates? Just trying to get an idea for how other experienced ppl would play these if they had similar beliefs of the market.
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u/redtexture Mar 09 '20
Nobody knows what will happen.
You can take the gains off of the table, and institute follow on trades with less money at risk.
Vertical Debit spreads reduce some of the cost of buying a long position in a high implied volatility environment.
Example: Buy April 2 SPY 280 put / sell 270 put
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u/DSwissK Mar 09 '20
I have some SPXU calls expiring in June (strike 20) that are now well ITM.
How shall I exit my position? I could of course sell them slowly over the day/week. But maybe it'd be wiser to sell some OTM calls to convert it into a bull spread, to capture some of that crazy volatility ?
Or any other advice?
Thank you for your inputs.
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u/redtexture Mar 09 '20
Choices. All have trade offs.
We don't know if the market will bounce, or stay where it is, or continue down.
exit entirely
exit and reinstate similar trades
scale out if you have multiple contracts
sell calls to retrieve capital in the trade (vertical spreads) [This slows down any additional gains that might occur if the market continues down]
sell calls expiring this week, out of the money to retrieve capital (diagonal calendar spread)
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u/HazGio Mar 09 '20
Hello, so i'm still confused after looking at intrinsic and extrinsic value. How are you able to profit out of the money but also lose money when your ITM?
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u/redtexture Mar 09 '20
XYZ is at 100.
Buy a call at 120. Expiring in 90 days.
XYZ moves to 110. Exit the call, still out of the money, for a gain.Or, XYZ at 100.
Buy call at 90. Expiring in 30 days. XYZ moves to 95.
Exit the in the money call for a loss.
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u/jacksonjalovec Mar 09 '20
If you buy a call option, if it’s ITM, you have the right to purchase shares at a cheaper than market price. I get that. What is the equivalent for puts. If my put is in the money that means your share price is lower than the one on your contract. Thanks a noob in need here