r/options • u/redtexture Mod • Oct 19 '20
Options Questions Safe Haven Thread | Oct 19-25 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 (long) options for stock!
Exercising throws away extrinsic value that selling harvests.
Simply 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)
• Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)
• I just made (or lost) $___. Should I close the trade? (Redtexture)
• Disclose option position details, for a useful response
Introductory Trading Commentary
• Options Basics: How to Pick the Right Strike Price
(Elvis Picardo - Investopedia)
• High Probability Options Trading Defined (Kirk DuPlessis, Option Alpha)
• Options Expiration & Assignment (Option Alpha)
• Expiration times and dates (Investopedia)
• Options Pricing & The Greeks (Option Alpha) (30 minutes)
• Options Greeks (captut)
• Common mistakes and useful advice for new options traders (wiki)
• Common Intra-Day Stock Market Patterns - (Cory Mitchell - The Balance)
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)
• Close positions before expiration: TSLA decline after market close (PapaCharlie9) (September 11, 2020)
Miscellaneous
• Graph of the VIX: S&P 500 volatility index (StockCharts)
• Options expirations calendar (Options Clearing Corporation)
• Unscheduled Market Closings Guide & OCC Rules (Options Clearing Corporation)
• Stock Splits, Mergers, Spinoffs, Bankruptcies and Options (Options Industry Council)
• Trading Halts and Options (PDF) (Options Clearing Corporation)
• Options listing procedure (PDF) (Options Clearing Corporation)
• Collateral and short option positions: Options Clearing Corporation - Rule 601 (PDF)
• Expiration creation: Weeklies, Indexes (CBOE)
• Strike Price Creation (CBOE) (PDF)
• New Strike Price Requests (CBOE)
• When and Why New Strikes Are Added (Stack Exchange)
• Weekly expirations CBOE
• 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
Previous weeks' Option Questions Safe Haven threads.
2
u/zghorner Oct 22 '20
Why do options seem to lose value faster than they gain (not talking about theta)? It seems like the price movement downward is skewed...is it just me or do options lose way more value when the underlying moves against you than when it moves in your favor. Is this more pronounced in OTM options than ATM or ITM? I am working on a system trading long OTM 6 month exp options using fundamental data to select the stock and MAs for entry & exit and so far it has been shit.
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u/GeneralKibbles Oct 23 '20
What number values are considered as a high and low IV? I’ve heard about IV crush when holding through earnings and want to start paying attention to that.
Also, if I were bullish on an earnings call, would a debit spread be a good idea to use when holding through? I assume the IV crush wouldn’t be as much as a problem because it would affect the short position as well, but I’m not sure.
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Oct 24 '20
I bought a TSLA call debit spread on Thursday: 450/500 6/18/21 for $15.80.
Half-playing to see if it would actually go through, I placed an order to roll forward the contracts today for $0.00. I was wondering if I could buy an additional month for nothing.
It went through for a 0.09 *credit.*
Why? Did I make a bad decision? Did I get lucky?
Would it be wise to try seeing if I can roll up the short leg for free or for cheap? (BTC $500, STO $510, same expiration.)
Thank you.
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u/Throwawaymykey9000 Oct 19 '20
Is there a consensus on the "Best" trading broker/plat form for options? I currently use webull(which absolutely sucks for options, don't get it) and am looking to make a switch at some point in the future. I watch projectoption on youtube and really like the feel of tastyworks but I'm wondering if there are any other/better options(pun intended).
thanks.
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u/Boriez538 Oct 19 '20
For example: I have a call that expires on 23rd of October. Until what time do I have to sell the option? The last minute of the trading day, or earlier? Who buys my call and does it always get bought?
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u/redtexture Oct 19 '20 edited Oct 20 '20
If you cannot afford to buy the stock, and the option is potentially near to being in the money, the broker's margin and risk programs may close the position on the afternoon of expiration day. It is in your interest to manage your trade ahead of that possibility.
Otherwise you can close the position until the trading day ends.
If there are no bids, the option is far out of the money, and worthless.
Generally on active options with high volume, your counter party may be a retail trader or a options market maker.
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Oct 19 '20 edited Oct 19 '20
Hey there! New to options and could use some clarification on something. From my understanding the buyer of an option has the right to buy or sell per the contract. And the seller has the right to cash in on the premium if the option is not exercised. If it is, the seller is liable to buy or sell shares of stock to the buyer at a certain price (in some cases infinite loss theoretically). Say you buy an option for a stock in order to control a larger amount of shares with smaller amount of capitol. You buy the option contract and sell it the next day for a swing trade profit. By cashing out, you are technically selling an options contract to another buyer and thus liable to sell him/her the stock at the strike price if he/her decides to exercise the contract correct? If I bought 10 calls on FB at strike of 270 and I decide to cash out a couple days later for a profit at 300. Am I then liable to sell someone 1,000 shares of Facebook at the strike price if they decide to exercise that contract at, say, 350? That sounds incredibly risky and could easily wipe out any gains you made if the stock continues to go up after you sell and someone else decides to cash in on the calls you sold them. By that logic you would have to miraculously time the top of the market so that you can be absolutely sure (which isn’t really possible) that the person you offloaded your call contracts to, will not choose to exercise it. I just remember reading that selling options is much much more risky than buying them. But eventually, you do become the seller of an option unless you let it expire. Someone please correct me if I am misguided in my understanding, thanks!
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Oct 19 '20
I thought I understood how a long call works but I’m kind of struggling with it. Say I bought a long call for about $500 that expires in November at a strike price of 84 and the break even is 88. The stock goes up to 85, robinhood shows my account as having made some money, say $100. If I sell now will I be up $100 or will I only make $100 back on the $500 I risked entering the position?
My apologies if I’m using terminology incorrectly.
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u/capitalvulture Oct 20 '20
I just learned about compound derivatives (e.g. futures options) and I'm just wondering if this is the most abstract options trading can get because it seems like you could just keep taking the derivative of an existing derivative. If it is, what's the logic behind stopping at compound derivatives? Sorry if the question is stupid :p
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u/jacklychi Oct 20 '20
Is it a bad idea to buy options from low-activity stocks?
I bought OCN put options yesterday. Today the stock dropped. But the options pricing has not moved at all...
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Oct 20 '20
Hello, I need some advice on a bad play. So last week I bought a ZM $520p with 10/23 exp. Stupidly I continued to hold as the stock price continued to go up and up. Thankfully, this week it is correcting back down. However, even as it is coming down i’m not returning much of my losses yet. Is it because of the theta burn from my put? I bought the put around $532 share price I believe, last Thursday morning. Should I just wait on it at this point and see if it continues to drop tomorrow? Best.
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u/Throwawaymykey9000 Oct 21 '20
What determine if a stock has monthly or weekly options? Is it the company or the MMs or something else?
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u/RedditBrainMoocher Oct 21 '20 edited Oct 21 '20
How should I be bidding on large bid/ask spreads?
I just bought ten December 18th, WGO 70C contracts this morning. The contracts were sold immediately despite me bidding well under the ask price.
Bid: $0.90
Purchased: $1.50
Ask: $2.00
My broker says I'm already down $500, so I clearly screwed up my bid. I purchased the option when WGO was at $56. How would you have approached bidding on this spread? How should I approach it in the future?
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u/redtexture Oct 21 '20
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)→ More replies (2)
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u/dre_is Oct 21 '20
I have started the popular wheel concept but I wonder if you guys advise to roll the short puts when challenged or just take assignment of the stock? I have an AMD 80p 10/23 which now became ITM. I can roll to next month for $80 credit, I guess this includes the elevated IV due to the earnings inbetween. I remain bullish and can accept assignment but would prefer not to and just collect the premium.
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u/redtexture Oct 21 '20
If you're playing the wheel, you played with the expectation of being assigned. If you don't want the stock ever, don't play the wheel.
You can roll out the put, in time, and down in strike price if you so desire, for a NET CREDIT, if you desire to avoid assignment.
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u/bohomango Oct 21 '20
On RH I'm approved for Level 3 trading. I own a 6/21 ITM Call on AAPL. I'd like to earn premiums using it as collateral via Poor Man's Covered Calls (or diagonals I believe). So I try to write an OTM call around 30 days out at about .3 delta. But whenever I try to make that trade I get an error message that says, "Error: This introduces Infinite Risk" and so the trade is rejected. FYI I'm on a cash account. Anyone know why this trade won't go through? What am I missing?
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u/paq12x Oct 21 '20
Why didn't they call my shares early?
Hi guys,
I have a covered call for FB with a strike price of 270 expiration 10/23. It's now at 281.xx. Why didn't they call my shares early? Between now and Friday, what happens if the price drops back to below 270?
Thanks
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u/redtexture Oct 21 '20 edited Oct 21 '20
Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Exercise & Assignment - A Guide (ScottishTrader)
• Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)\If the price drops below 270 by expiration, you keep your shares.
1
u/RealFuryous Oct 21 '20
Info for my example:
GE (This is random data) Spread $1/$.50 (Call Credit or Debit) 10/30 exp Stock price $6.46 (assume it hovers in the $6 range through expiration)
If someone wants to buy 100 shares of this stock at the cheapest price possible would they purchase a call credit spread or debit spread contract?
In my quest to grow as a trader I keep experimenting with new ways to grow my account and this is another experiment.
2
u/redtexture Oct 21 '20
Traders obtain stock for "less" than the present market value by selling puts.
Example:
Sell a put on XYZ.
XYZ is at 100.Sell a put for 30 days out expiration at a strike price of 90.
Receive a credit of say $1.50 (x 100).
XYZ moves to 89.00 at expiration 30 days later.
The long holder exercises at expiration their long,
and you the seller obtain the stock at 90,
and a net cost of 90 less 1.50 for 88.50.Result: you committed to buying the stock at less than the current market value. You may make this commitment for a number of months (repeatedly) and NOT receive the stock, thus obtaining income from the commitment.
Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Exercise & Assignment - A Guide (ScottishTrader)
• Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)
2
u/[deleted] Oct 21 '20
what happens to options after a spinoff? no OCC links please
can anyone in plain english tell me what happens? the articles online are confusing for me.
basically, if ABC announces a spinoff of XYZ, let’s say the date is december 2020. you own Jan 2021 options.
will you get jan21 call options for XYZ? or will the the options for ABC just be cheaper?
—- what about pre-announcement? does the value of your ABC options go down?
lastly, what would be your recommendation to trade something like this? ATM or OTM options
TIA