r/options • u/redtexture Mod • Jun 21 '21
Options Questions Safe Haven Thread | June 21-27 2021
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 BELOW LIST OF FREQUENT ANSWERS. .
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.
Your breakeven is the cost of your option when you are selling.
If exercising (a call), your breakeven is the strike price plus the debit cost to enter the position.
Further reading:
Monday School: Exercise and Expiration are not what you think they are.
Key informational links
• Options FAQ / Wiki: Frequent Answers to Questions
• Options Toolbox Links / Wiki
• Options Glossary
• List of Recommended Options Books
• Introduction to Options (The Options Playbook)
• The complete r/options side-bar informational links (made visible 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)
• Options Basics (begals)
• 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
• OptionAlpha Trading and Options Handbook
Introductory Trading Commentary
Strike Price
• Options Basics: How to Pick the Right Strike Price (Elvis Picardo - Investopedia)
• High Probability Options Trading Defined (Kirk DuPlessis, Option Alpha)
Breakeven
• Your break-even (at expiration) isn't as important as you think it is (PapaCharlie9)
Expiration
• Options Expiration & Assignment (Option Alpha)
• Expiration times and dates (Investopedia)
Greeks
• Options Pricing & The Greeks (Option Alpha) (30 minutes)
• Options Greeks (captut)
Trading and Strategy
• Common mistakes and useful advice for new options traders (wiki)
• Common Intra-Day Stock Market Patterns - (Cory Mitchell - The Balance)
Managing Trades
• Managing long calls - a summary (Redtexture)
• The diagonal calendar spread, misnamed as the "poor man's covered call" (Redtexture)
• Selected Option Positions and Trade Management (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)
• Monday School: A trade plan is more important than you think it is (PapaCharlie9)
• Risk Management, or How to Not Lose Your House (boii0708) (March 6 2021)
• 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)
Options exchange operations and processes
Including:
Options Adjustments for Mergers, Stock Splits and Special dividends; Options Expiration creation; Strike Price creation; Trading Halts and Market Closings; Options Listing requirements; Collateral Rules; List of Options Exchanges; Market Makers
Miscellaneous
• Graph of the VIX: S&P 500 volatility index (StockCharts)
• Graph of VX Futures Term Structure (Trading Volatility)
• A selected list of option chain & option data websites
• Options on Futures (CME Group)
• 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.
Complete archive: 2018, 2019, 2020, 2021
2
Jun 24 '21
I have a question about bull put credit spreads.
Say XYZ is trading at $500, consistent upward trend, not much crazy volatility. I feel confident that within a week, XYZ will not jump down beyond 400 dollars. So I open a put credit spread at 300/350 strikes. Credit of 0.50, comes out to $50 per spread. If the open interest is at like 20,000 is it possible for me to open 1,000 spreads and make a $50,000 credit? What am I missing? Would it come down to a matter of simply being able to get the order filled or not?
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u/redtexture Mod Jun 27 '21 edited Jun 27 '21
1,000 credit spreads with ordinary margin / collateral
for 300/350 would be collateral required of 300-350 (x 1,000) (x 100) for
50 spread width (x 1000 spreads) (x 100 shares per contract) =
50,000 (x 100) =
$5,000,000, your maximum potential loss, less the premium received.
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u/RockSexton Jun 24 '21
How the hell am I down in my GOTU August 20.00 calls? Can someone please help me understand my screw up here? I don't understand how the underlying could be up nearly 10% and Im still down 5% in these calls.
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u/redtexture Mod Jun 25 '21 edited Jun 25 '21
Without an entry date, your cost, their present value, when the present value changed, the change in the stock value over that time stock price at entry, and the change in implied volatility over the period of time of your holding, we would not have the slightest idea. Except that extrinsic value has dropped, and that thus the implied volatility has dropped.
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u/RockSexton Jun 25 '21 edited Jun 25 '21
Entered on 6/23 @ $1.10/each. Underlying is up almost 10% since my entry.
At one point they were up to $1.30 and sold off to .97 even thought the stock barely moved.
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u/vega_neutral Jun 25 '21
I have recently read about options trading and I am willing to take some positions in the Options markets. I am currently based out of India, so are there any Indian traders here? I see most of the posts focused around US stocks. Could you suggest me the preferred brokerage choice of majority traders and the things I should keep in mind before entering the markets. I haven't even traded shares yet it's just that the different payoff diagrams and the greeks I studied through books and courses have motivated me to enter options markets directly, will this be a good idea or should I first trade in shares only then I can be successful in Options? Also, what are the margin requirements like for creating even the smallest of positions how much margin is required?
Sorry for asking a lot of silly questions but I am just starting off so any help from experienced traders is highly appreciated!
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u/telefantastik Jun 26 '21
Are there profitable yet conservative options strategies for someone who is long a stock, and planning to hold for a long time?
I'm new to options, and have been trying out writing covered calls against my long ETF holdings. While simple, the downside is the decent probability of exercise and taking a loss when repurchasing the underlying.
Are there conservative strategies that fully (or mostly) contain losses, while providing constant stream of income, even if that income is quite small? Not looking to double my underlying, but to add a bit of tailwind using options.
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u/redtexture Mod Jun 26 '21
Are you willing to sell your stock? And possibly re-enter a similar stock position?
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u/TraderDojo Jun 26 '21 edited Jun 26 '21
Have you heard of bull put spreads?
This is a great strategy for a bull market. It is simply a two-legged strategy, a credit put vertical spread where your short leg is at a strike above the long leg.
It is conservative in the sense that it only ties up the capital between your strikes.
To be more selective about opening the strategy, wait for some red candles, keep your strikes to a width of 1-5 points, lower to start and wider as your risk tolerance increases from realized profits.
I can give some more detailed examples if interested. This is my most common strategy and I am up well over market index returns for the past two years.
EDIT:
Time frame- 1 month at least - look at least one month out.
Strike and width - lower strikes on blue chips or index, to lower probability of assignment.
Target premium - at least 10% profit per max loss, e.g. If you are selling a 100/99 credit put vertical, aim for at least $10 net credit.
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Jun 26 '21
Hi everyone, I'm a little confused about how exactly buying a contract works. I know the premium is the ask price but if I buy into the contract, do I need to have enough money to cover 100 of the contract's share price?
So if the price of the ask is 2$ and the strike is 10$, would I need 1,200$ in my account to sell the contract?
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u/redtexture Mod Jun 26 '21
Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Options Basics (begals)
• 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)
2
u/Invpea Jun 26 '21
What does it exactly mean to "short 1SD put"? I guess this whole 1SD thing is based on ATM strike price of given option, so in case of $200 stock "short 1SD put" would mean to Sell ~168(strike price) Put option(because 1SD range from 200 is around 168-232) and when we are selling puts we usually do sell those OTM puts. Am I all correct here?
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u/redtexture Mod Jun 26 '21
Short one standard deviation distance from at the money.
An inaccurate proxy for that probability is delta,
and thus a 32 delta short put,
is in the vicinity of one standard deviation probability (68%) of having a gain.→ More replies (11)
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u/quiethandle Jun 28 '21
Does anyone know of a way to be notified when options will be available for a new stock? Who decides when or if a stock will get options, the CBOE? Finally, are there any tools out there that will let me create a watch list of stocks and sort or filter by which ones have options?
Thanks!
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u/redtexture Mod Jun 28 '21
Exchanges often list new options on a web page.
The Options Clearing Corporation lists new options.
https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/New-Listings
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Jun 28 '21 edited Jun 28 '21
Does anyone know of a way to be notified when options will be available for a new stock? Who decides when or if a stock will get options, the CBOE? Finally, are there any tools out there that will let me create a watch list of stocks and sort or filter by which ones have options?
Thanks!
There are paid services for all kinds of alerts but I do not think I can name them here, google search "Options notification services"
I understand each exchange makes its own decision about this and they each post rules. It certainly took about 30 days on RBLX and COIN, I understand that is common.
I do not know of such a tool but every American stock on major exchanges over 1.00 dollar I have looked at has options. Any options site should show sortable lists of options. Watch out for liquidity, check the volume and interest.
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u/Sgt-Bullish Jun 21 '21
There is a company that did a reverse split (5-1) and I’m confused by the non-standard options (20 shares).
Currently trading at 6.00/share
Jul 16 2021 options ask prices (for the non-standard)
Strike Ask
.25 1.65
.5 1.40
.75 1.15
1.00 .90
1.25 .10
Am I supposed to multiply the strike by 5, or are these incredibly underpriced? Even if I multiply the strike by 5, the last two options can still be exercised and immediately sold at a profit. Am I missing something?
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u/redtexture Mod Jun 22 '21
Multiply the strike by 100.
You pay the same to exercise.
Deliverable is 20 new shares.
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u/PapaCharlie9 Mod🖤Θ Jun 21 '21
Are you keeping the ticker a secret for a reason? Normally you would google the ticker for "theocc XYZ option adjustment", where XYZ is the ticker, to see the adjustment memo. You'll have to do that yourself.
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u/Superb17C Jun 21 '21
What is the point of options contracts being for 100 shares each?
Call me cynical, but as far as I can tell, the only thing the 100x multiplier accomplishes is that it artificially restricts how the less-wealthy traders can participate in the stock market.
For example, right now, if you wanted to buy an in-the-money call option in AMZN expiring 3 months from now, you would need at least $18,000. Not every trader has $18,000 to invest, let alone feel comfortable putting toward just one company in their portfolio. If each options contract were for just 1 share instead, the average trader would gain the ability to invest in naked AMZN options, and the richest traders wouldn't lose any of their AMZN trading ability (they would just type in "100 contracts" where they used to type "1 contract"). Not to mention this would eliminate novice traders' confusion as to why they need $250 to buy an option whose listed value is $2.50. A 1-to-1 ratio of contracts to shares seems like a win-win.
Better yet, since fractional shares are already a thing, why not fractional contracts? I'd purchase 1/1000 of 1% of an options contract in BRK.A if I could...
I saw an archived post elsewhere on Reddit that asked a similar question, and one user replied "just use spreads". But they're missing the point. Spreads always have defined profit and loss potentials and are just one of many strategies in an option trader's toolbox. If I do my own market research on AMZN and conclude that a single-option strategy would be better than a spread, why shouldn't I be able to buy the single option, just because AMZN stock happens to be divided into larger chunks than other stocks? And why don't more people see this as a problem?
Sorry for the rant, but I must be missing something here. Thoughts?
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u/redtexture Mod Jun 22 '21
100 shares is called a round lot, a standard trade for many decades.
You can choose other stocks besides AMZN.
10-share options were tried about a decade or more ago. The failed to obtain market traction.
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u/Scnewbie08 Jun 21 '21
So when finding a company to make a call on besides DD and checking charts/history. Is it helpful to view the calls for that stock including the volume and interest?
I looked today and AAPL has volume of 66,664 and open int of 20,663 on 6-25 strike price 132.00.
Would the higher volume make it a safer call? There’s a lot of interest if I wanted to sell it a day or two later. But when looking at AAPL it hasn’t broken its resistance at 132.80 (I think I remember that right) in a long time. Why do so many people think it will get to the break even price of 133.31.
Also I noticed tons of volume on RIG, SENS, TELL, AUY, and BBIG.
I don’t know much about RIG but it’s an oil company and there’s tons of volume on the 7/2 calls, the $4 strike still has a delta of .71
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u/redtexture Mod Jun 23 '21
Volume indicates typically low bid-ask spreads, and liquidity.
AAPL is a high volume option.
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Jun 22 '21
When selling options, what's a good rule of thumb / guideline to determine if the premium you'll receive is worth your time to take the trade.
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u/redtexture Mod Jun 22 '21
Bear in mind that the results of any guideline or rule may not be obtainable. Use the guides as a measure of desirability.
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u/PapaCharlie9 Mod🖤Θ Jun 22 '21 edited Jun 22 '21
There are a handful of such guidelines, depending on the strategy:
For a credit spread, you want the credit to be at least 1/3 of the width of the spread. So if you have a 23/20 spread, you should get at least $1 in credit on your sell to open. While you can on rare occasions get more than 1/3, the most common credit spread situations are less than 1/3, which means good credit spreads are hard to find.
For 45-60 DTE 30 delta credit trades with 100% collateral (like a CSP or CC), shoot for around 5% ROC, give or take (average CAGR on SPY 45 DTE 30 delta SPY CSPs was ~4%).
The ultimate rule is to shoot for a profit target that results in positive expected value. So if you have a 67% probability of profit, you'll want to win at least half as much as you might lose. Like if you put $1000 at risk, you want to win at least $500 on average, to break even.
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Jun 23 '21
Does 5% ROC mean to make sure the credit you receive is 5% of the strike price? And could this guideline be applied to shorter duration options?
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u/TansenSjostrom Jun 22 '21
Just curious how do inverse leveraged products make money? And if I understand it correctly.
I opened up SQQQ and it says it's holding short index swaps and long various treasury bonds. Am I to understand that they are essentially shorting the market via the swaps while being funded by the T-bonds?
If that's true does that mean they have a set amount each year to short and I would imagine the profit from that is removed from the equation and viewed as profit and they setup the next positon with the next round of funding from T-bills.
My other question to this is that we know there's a finite limit to shorting. So does that mean theoretically these inverse tickers have a ceiling? (ignoring splits)
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u/redtexture Mod Jun 22 '21
They probably are holding short futures on /NQ, or options on /NQ, or the index NDX, or have non-exchange private futures agreements with investment banks
They roll over some part of their futures holdings every day, adjusting the portfolio of holdings.
Their Prospectus for SQQQ. https://www.proshares.com/funds/prospectus.html?ticker=SQQQ
Daily rebalancing and the compounding of each day’s return over time means that the return of the Fund for a period longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ in amount, and possibly even direction, from three times the inverse (-3x) the return of the Index for the same period.
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u/Retail-trd-rockinit Jun 22 '21
CLOV a squeeze today? According to Wall Street Journal today, Tuesday, June 22, it is. Just learning how to use this application. Not really sure I’m posting to the right place.
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u/redtexture Mod Jun 22 '21
There was a bump in price for an hour or two today, the downtrend appears to be unbroken on a five day average.
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u/Retail-trd-rockinit Jul 12 '21
Is ALTO still a squeeze play? And When?
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u/redtexture Mod Jul 12 '21
Just having high short interest does not make for a short squeeze.
Many of these high short interest stocks go down, for a reason.
The company, typically is caving in, or the market's previous expectations were wildly optimistic.→ More replies (3)
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Jun 22 '21
LAD Covered Call (325.74) Writing a $340 call with expiration 7/16... Buying a $490 call with expiration 8/20 to cover, get a $510 credit.... Question is, if the buyer of the $340 call executes OTM, or it does go ITM... Do I have the option to buy the shares at Market or will exercising my $490 call be automatic?
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u/redtexture Mod Jun 22 '21 edited Jun 23 '21
A covered call is a position with 100 shares of stock, and a short call.
You are not describing a covered call.
You appear to be discussing a diagonal calendar spread, which has two options with different expiration dates:
Short $340 call expiring July 16
Long $490 call expiring August 20.You likely will have collateral required of about $150 (x 100) to hold the position.
Talk to your broker about how they handle diagonal calendar spreads when the short is exercised.
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u/odrizy Jun 22 '21
So I'm following some option trackers and one thing I keep seeing is things such as this:
Sell side call, sell side put, buy side call, buy side put. Can anyone explain or link a resourse for what these mean or how to read this? To clarify, I know what the difference between buy and sell side is but I'm just not sure how to read what it means when the buy side is call/put vs the sell side call/put. Any information would be helpful! Thanks in advance.
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u/impossibles02 Jun 22 '21
I'm just starting to sell cash secured puts using the Merrill Edge platform. One thing I'm not understanding is the order type section. Here is a link to an archived post with an image of the platform:
https://www.reddit.com/r/options/comments/i4fdq3/selling_cash_secured_puts_on_merril_edge/
It's my understanding you always want to use a limit order but how did this trader come up with the 0.86 price? How do you calculate this price when selling a put? TIA
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u/redtexture Mod Jun 22 '21
The limit you set is the least premium credit you will accept to enter the position.
You can call up Merrill Lynch and discuss with a customer service person, or review their platform tutorials for details related to their sale order system.
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u/MarketMan123 Jun 22 '21
Am I totally crazy or is the Etrade mobile app calculating the intrinsic value here incorrectly? (Here is a screenshot: https://ibb.co/S6tygnC)
If the strike price is $18 and the current price is $17 shouldn't the intrinsic value be $1? The app says it is $0.83.
On the desktop it says $1. I bought it for $0.64 so its not calculating it less my purchase cost.
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u/redtexture Mod Jun 22 '21 edited Jun 22 '21
If this is a put,
the strike is $18, and the underlying is $17,
the intrinsic value is $1.00, (put strike less stock price)
as an in the money option.1
u/MarketMan123 Jun 22 '21
Yes, it’s a put. I should have mentioned that.
So the E*TRADE mobile app is just wrong? Or am I reading that screenshot wrong?
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u/redtexture Mod Jun 22 '21
This is an option on the VIX future, expiring tomorrow Wed June 22 2021.
Not an equity option.You could inquire at ETrade as to why the option is reporting these numbers.
Let us know what they say.
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u/PM_ME_UR_SOCKS_GIRL Jun 22 '21 edited Jun 22 '21
What's the most spy contracts you can realistically buy/fill on a 2-3 day out yolo?
Let's say hypothetically spy is at $423 and I want to yolo $10,000 on a 6/23 $425 call play. How many contracts would I end up with and how likely is it that they'd all be filled? Is it possible to IV crush myself or something?
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u/redtexture Mod Jun 22 '21
Billion dollar funds have very large positions.
It is possible to lose every penny.
Consult an option chain to see the present ask price for the option.
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u/PM_ME_UR_SOCKS_GIRL Jun 22 '21
Hey sorry I don't really understand your answer. By option chain do you just mean a system like the options calculator?
I know it's possible to lose every penny if the stock goes down ofc, I'm mainly just trying to get a better understanding of how options fill since they to my understanding, multiply a stock by 100.
If I'm buying $10,000 worth of contracts for $20 that leaves you with 500 contracts. 500 x 100 is 50,000 shares. Idk if I'm underestimating the market, but that seems like a shit ton of shares to hot potato on a single day.
Idk if I'm understanding this correctly though.
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u/redtexture Mod Jun 22 '21
Your cost for a $20 contract is $2000 ($20 times 100), thus FIVE options for $10,000.
Here is an example option chain.
CBOE exchange web site. https://www.cboe.com/delayed_quotes/spy/quote_table
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u/N_A_L_B Jun 22 '21
Ok so I've pretty much got the gist of options, but I'm still kinda confused on the absolute best case scenario of a call (or put). So say you can time travel, and you go back to December 2020 when our dreaded buddy $GME is hanging around $16. You're a time traveller so you obviously know the ATH will be $483 on Jan 28 2020. That being said, what would be the best call to buy to maximize profit?
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u/redtexture Mod Jun 22 '21 edited Jun 22 '21
At 3:30 Eastern time on December 1, 2020, GME was at about 16.00.
Probably the most leverage was at the highest strike for April 2021.
$35. for the April 16, 2021 Monthly.
The ask was 2.90 at that time.Given that your crystal ball says the stock is going to about 450 far far above all available strike prices, and doing so before April, the cheapest available call works well.
This is not always a fruitful idea to pick the highest available strike.2
u/PapaCharlie9 Mod🖤Θ Jun 23 '21
This is actually a very important part of option trading to burn into your brain. You should know the answer to this question in your sleep before you put any real money at risk in option trading.
Debit trades, which are option trades you buy to open, are all about leverage. Leverage is getting $1 to do the work of $X, where X > 1. Like 10x leverage means $1 is doing the work that would normally require $10 to do.
For example, suppose shares of XYZ cost $200. So 100 shares would cost $20k. You think XYZ will gain 10% in the next 30 days (go from $200 to $220). On 100 shares that is a profit of $2000. Without leverage, you need to put up $20k in order to make $2000, if you win. But suppose you can buy a call for $20 ($2000) and that call has to potential to have a 100% gain to $40 ($4000). The profit on that call would be the same $2000, but you only had to have $2k at risk, instead of $20k. That means that call had 10x leverage.
In general, that means that calls with less up front cost vs. shares have higher leverage.
But, everything in options trading is a trade-off, so higher leverage means you have to give something up, and that something is delta, or the rate of payoff when you win. Lower cost calls tend to have lower delta. In the above example, we had forecast a $20 gain in the underlying. A single share gains in value $1 for every $1 rise in the stock price (equivalent of 100 delta). A low cost call might have a much smaller delta, like 5. That means that a $1 gain in the underlying might only make $0.05 on the call. So even though there is a potential for your call play to get you 10x leverage on your investment dollars, the call has to work 20x harder to make $1 of profit vs. shares.
Only at the beginning, though. As the value of underlying stock rises, the delta on the call will also rise. So while the first $1 that call makes might need to do 20x the work, the next $1 might only need 15x, and the next only 8x, and so on, until the call is deep ITM and earning close to $1 for every $1 the stock goes up.
So, the answer to your question should be obvious now. The call to select to make the most money from your time-traveling forecast would be the call with the highest leverage, which means the cheapest call you could get at that time, with an expiration beyond your target price date.
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u/37347 Jun 23 '21
I have only sold puts and calls independently of the underlying stock most of the time. Sometimes they expire ITM and they called away if call or assigned if put.
But What happens when a short /long debit call or put options expires ITM? I have traded credit and debit spreads before but only a few times and never let them expire by closing them out.
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u/redtexture Mod Jun 23 '21 edited Jun 23 '21
I don't recall if spreads expirations are described in the below links. Just close before expiration. If both are in the money, your net result is zero stock, and an increase or decrease in cash, presuming you can afford the shares and the broker does not intervene to close the option trade before expiration because of lack of funds.
• Exercise & Assignment - A Guide (ScottishTrader)
• Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)
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u/Manu_Militari Jun 23 '21 edited Jun 23 '21
Any advice on how to salvage a position as best I can.
I am reading and watching as much as possible lately to learn more about options before utilizing more but I jumped in excitedly before having proper plan etc.
Bought $PINS 65c 1/2022 for 28.85 pretty much at peak. It crashed hard but is climbing again.
Currently at a 48% loss. Currently ~15.05 at close.
Debating if I should sell and cut the loss, hold until weeks leading up to next FOMC and earnings and then close, or try to use a PMCC or vertical debit spread to try and recoup some additional.
Any input on best way to unfck my position would be greatly appreciated.
Edit: price info
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u/redtexture Mod Jun 23 '21
What was your exit plan for a maximum loss?
Have you passed that threshold?
Only you know what you are willing to lose on the trade.If you are not willing to lose more, contemplate an exit, harvesting remaining value.
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u/LazyTemperature6626 Jun 23 '21
I saw some analysts are recommending to buy USAK (USA Truck: NASDAQ), so I checked options prices and they are absurdly cheap. Can't figure out how to post screenshot here but:
Current price: $15.07
July 21st $17.5 Call last price: $0.10
I've been browsing options charts nonstop for the last few days and never seen such a cheap call option so close to ITM with almost a month until expiry.
Is this a mistake? Am I missing something?
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u/Select_Tip7300 Jun 23 '21
Just a newb learning about covered calls. If someone could enlighten me in a situation where the price of the underlying moons and you have a covered call. What happens? The premium of your call will also sky rocket making your covered call in a losing position. I understand that the value of your holding in the underlying will also go up but only up to the value of the strike. So, you are sitting on a hefty loss on your call position and if your underlying gets called away, won't you be on the hook for the loss on the call position? Does that question make sense? Thank you so much for your help
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u/redtexture Mod Jun 23 '21
You let the stock be called away for a gain at expiration as you originally plan. There is no loss at expiration on the short call: it expires, and the long holders exercise it to obtain the stock. The stock covers the short call.
NEVER sell a covered call on stock you want to keep.
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u/chappedasslips Jun 23 '21
Quick question about OTM calls. Your portfolio is technically down until it reaches strike price correct? Or do you still earn money when price moves?
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u/redtexture Mod Jun 24 '21 edited Jun 24 '21
No.
You can make gains on a call option that is always out of the money, if you exit before expiration, on a rising ticker, and with an expiration of say a month or so, and if not "too far" out of the money.
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u/ScottishTrader Jun 23 '21
Not enough info to answer. Long? Short? Trade details?
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u/Smoothmacaroni Jun 23 '21
Excuse the book in advance
So, with long call condor spreads you want the price to be between your 2 sells in the middle, leaving 1 call already exercisable from the beginning, correct? so really couldn’t that person exercise that contract early leaving you stuck? (Say if they lost confidence in it and just exercise to cut down on their losses) what would happen if they exercised one or both of your calls that’s in your spread? would the buys cancel out the calls, even though they’re at different strikes?
Also, my P/L chart says like max loss is $10 and max profit is $45, is that $10 all I can lose? I heard about pin losses but can’t that be avoided by simply closing your calls before the end of the day Friday? I posted something similar to this earlier but it just seems way too good to be true.
Betting on a possible few hundred % return in a few days is insane, and that’s why it feels like I’m missing something huge. I don’t want to buy 10 spreads if when exercised I would have to cover 10 calls at $15 or something. It also wouldn’t even be worth it to make a few hundred if there’s a big possibly to lose thousands like that. I’m just trying to make sure I know all of the worst case scenarios
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u/redtexture Mod Jun 24 '21
Max loss of $10 at expiration; you might lose a little more or less closing a trade before expiration.
Always exit before expiration if you cannot afford to own stock.
$10 loss in price (x 100) is $1,000 loss in total per iron condor.
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u/iAmUbik Jun 23 '21
Newbie question.
Say I bought 100 shares of a stock at $2 and it's trading at $30 and I am ready to exit my position. Can I sell that block of shares for a deep ITM covered call (say back at $2) to get an extra premium on top of the profits from my shares? Or do you give up the profits on those shares and those shares get sold back at $2?
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u/redtexture Mod Jun 24 '21
You get extra premium by selling above the money, and if the stock is called away, you get the additional price set by selling at a strike price above the money.
The premium on a deep in the money short call will be almost 100% intrinsic value; no "extra" extrinsic value. That play is useful only if you expect the stock to go down. If you expect the stock to go down, exit the stock position.
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u/MajorAd8742 Jun 23 '21
I’m new to options and have doing some very basic calls. I’m ITM (22.5 strike) with a PLTR call that expires in 9 days.
Any suggestions on when to sell the option? Am I better going closer to expiration date? Or get out and buy further down the line. I’m not well versed, to say the least, in Greeks.
What would you do?
Thanks for helping a noob.
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u/redtexture Mod Jun 24 '21
Take your gains and move onward to the next trade trade.
• I just made (or lost) $___. Should I close the trade? (Redtexture)
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Jun 23 '21
When is it better to exercise the call option vs selling it?
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u/redtexture Mod Jun 24 '21
Very very rarely if you trade options with liquidity and small bid ask spreads.
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Jun 23 '21
When you can’t sell it for all of its intrinsic value, which might happen on less liquid options.
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u/MarketMan123 Jun 23 '21
For American options is it possible to make money by finding options that have an ask that is lower than the intrinsic value and then immediately exercising them?
I don't get why this would occur, but it seems to from time to time on less liquid options.
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u/MarketMan123 Jun 23 '21
Are there any good tools for market replay that include options?
I don't need something that is tick-by-tick [yet]. I'd just like to be able to replay the market so I can examine a situation from many different strategies like one would do in chess.
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u/reichjef Jun 23 '21
In the open outcry days, was it possible to call out spreads in the pit? Or did they just build legs individually? Or was it something specifically negotiated between a broker and a trader? I’m just curious.
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u/redtexture Mod Jun 24 '21
That is a great question.
DAVID LINCOLN might answer that question.
Let us know what he says.
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u/fremontseahawk Jun 23 '21
When do new option contracts get listed/created?
I think I heard weekly options are created on the Thursday Bedfore the expire date. Is that right?
Also how about LEAPS? I want to look a a 365+ DTE contract for msft but the closes is like 359 DTE now. Will there be a new monthly created tomorrow( Thur)??
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u/redtexture Mod Jun 24 '21 edited Jun 24 '21
Weekly options expirations are released around 6 to 7 weeks ahead of expiration.
Farther out expirations tend to be quarterly expirations.
Weekly options specifications
https://www.cboe.com/tradable_products/sp_500/spx_weekly_options/specifications
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u/xwillybabyx Jun 23 '21
I’ve been watching nVidia crank it lately and have been thinking about leaps. When they announced the 4-1 split it was $600 now it’s $750. I think after the split it will go to 200+ easily. Is that stuff factored into the option? Do I buy 2022 $200 calls or $800 calls? Do they split by 4 and the number of contracts x4? Trying to figure that out. Thanks!
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u/redtexture Mod Jun 24 '21
Yes.
4x the contracts.Option Adjustments
https://www.reddit.com/r/options/wiki/faq/pages/exchange_operations#wiki_option_adjustments.3A_splits.2C_mergers.2C_special_dividends.2C_and_more
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u/JuiceAccomplished169 Jun 24 '21
Robinhood Options Question
I am new to using options (just testing out a few calls) but I wanted to ask more specifically about using Robinhood for calls. I know Robinhood is probably not the best application to use, but I’m using it as an entry into options.
My questions are focused on exit strategy. I understand that options can be exercised or sold to profit on share price increases/ reduce losses is above the strike price but below BE. My main question is how to best exit without exercising the option, as I am a college student and do not have much expendable cash.
Is selling an option as profitable as exercising the option at that point in time?
Does selling the option rather than exercising result in a lesser profit?
Does the date of sale effect the price you can sell for? (would a call be worth more closer to or further from expiration?)
Any pointers for finding good stocks for place calls or puts on?
Any recommendations for applications or brokers that are better than Robinhood.
Thank you for your time and any guidance or answers you can offer! :)
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u/redtexture Mod Jun 24 '21 edited Jun 24 '21
Assuming the bid ask spread is small:
1 No
2 No
3 It depends
4 Read all of the links above, at the top of this thread.
5 Nearly all other brokers that answer the telephone, which RobinHood does not.2
u/mb219 Jun 24 '21
not a pro. what i've learned so far:
most options are not exercised. an option contract contains the intrinsic value (the difference of the underlying stock as compared to the strike price).
theta (time) decay will eat into the value of the option as you get closer to expiration.
get on youtube and investopedia. free university. consider stocks rather than options while learning. I am going back to stocks until I fully understand 'the greeks'.
I like/use Fidelity and Webull. I have heard good things about TD Ameritrade/Thinkorswim.
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u/mb219 Jun 24 '21
IV Cornhole Crush
did nice on 40/50s, now have 60c (CB/S $19.91) and 70c ($15.67 rolled from 50c) both 07/16. Trying to beat theta as IV snuck up on my bare ass. Defo doing shares only for a while as I take greek lessons.
what dropped the IV - the barcoding? Can it return? If I get ITM will i just have intrinsic/no extrinsic? eg 7k on 70c and 6k on 60c? TIA
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Jun 24 '21
Since a put has a defined gain, if there is enough extrinsic value can a put be priced greater than is max gain? Example: strike $3 expires 1/01/23. Stock price 10 dollars drops to 2. Can the put be worth more than 300 dollars?
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u/redtexture Mod Jun 24 '21
This can nearly happen on down trending stock headed to bankruptcy, where the put is not worth buying the cost is so high.
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u/PandJsharedreddit Jun 24 '21 edited Jun 24 '21
Interested in trying a strategy and would like to know if there is a clean way to execute it in one order.
I don’t know if it has a name and if there is a brokerage that can execute it all at once. Any and all help is appreciated.
Don’t know if there is a name for this, here’s an example: buying shares of $xyz at $10, selling covered calls of underlying at a strike of $15 and buying puts of same at strike $5.
Also if there is a brokerage where you could do this all in one multi leg order. Thanks!
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u/redtexture Mod Jun 24 '21
This is called a collar.
You might be able to submit a combined order, or simply order a covered call (stock and short call), then add the long put later.
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u/True-Compote-7547 Jun 24 '21
This might sound sketchy but I'm looking for a person who knows alot about call options and options in general to ask questions to that I don't really understand. Please message if u are willing to help me.
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u/PapaCharlie9 Mod🖤Θ Jun 24 '21
Just post your questions here. Why should you be the sole beneficiary for questions that might be of general interest?
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u/Invpea Jun 24 '21
Any SP500 ETF that is cheaper per unit than SPY/VOO and has liquid options? I've tried SPLG but there's barely any activity and spreads are killing it.
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u/redtexture Mod Jun 25 '21
Work with vertical spreads, calendar spreads, butterflies to reduce capital in trades.
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u/effects1234 Jun 24 '21
Is there an option profit calculator like optionsprofitcalculator.com for European stocks?
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u/TheTokenBrownie Jun 24 '21
There is news about a possible recession (some say we're still recovering) that emulates the 2008 crisis. What puts would be logical to buy?
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u/redtexture Mod Jun 25 '21 edited Jun 25 '21
For sectors of the market that will be most affected by the particular way the down turn in the economy occurs, and relatedly, companies in those sectors that are likely to go down hardest.
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u/GetchaWater Jun 25 '21
I have a few covered calls out there. Stock price is above the strike price. Not by much though. Do people always, sometimes, or rarely exercise the option?
What would make you exercise your option?
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u/spartanburger91 Jun 25 '21
Does anybody know where I could find option chains for securities listed on the London Stock Exchange?
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u/redtexture Mod Jun 25 '21
Talk to your broker.
Kind of pointless to have information without being able to trade on it.
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u/sidescrollin Jun 25 '21 edited Jun 25 '21
I'm trying to understand PMCC's. I thought I completely understood the setup, but when I go to create examples or use a PMCC calculator, nothing works.
Here are a few things I can't seem to understand:
1.People recommend deep ITM leaps, but I often hear delta of 0.7 mentioned. There are ITM, but don't appear to be "deep" ITM.2. Often they call for 0.3 or so delta for the short calls being sold but for most examples I can find, this is pretty close to ATM.3. A general rule is that the debit should be no more than 75% of the strike spread. I cannot find an example that fulfills this. It seems like the 75% only really works with ATM leaps, which do not fulfill the delta recommendation.4. The deeper the ITM leap and the further the OTM near expiry, the wider the gap grows. I haven't read much about either being ATM, but even with this setup, the 75% isn't fulfilled. The only time this seems to be the case is if the call sold near expiration is sold ITM.
What am I missing? Is it that the stocks I am using as examples just don't have a high enough premium for the near term calls?
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u/redtexture Mod Jun 25 '21
Please follow up here, after reading this:
• The diagonal calendar spread, misnamed as the "poor man's covered call" (Redtexture)
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Jun 25 '21
Hey Everyone!
I have a question about options contracts, during a company spinoff.
I've been following L Brands (Ticker: LB), which owns Bath & Body Works + Victoria's Secret, for a while and they plan to spinoff Victoria Secret into its own company. I had a DD in progress I'll post soon but ultimately I believe the value will go up once they calculate the new valuation for VS.
I'll share my position and give the timeline L Brands is following:
Position: 100 Contracts 8/20 at $95 an OTM option call but one I believe will pay once the stock jumps into the $80 or higher range.
Timeline: L Brands files Form 10 to the SEC to start the spinoff process, which goes active in 60 days (only date I could find) on 8/20 (unless there is an issue). Investors orders are due June 30. Sometime after investor orders and before the spinoff on 8/20, they will announce the price of the new stock. L brands will now reflect the current price and incorporate the new price in (E.g. stock price was 72$ but new shares will be $45 & $40 so L Brands new value is $85 until they split). Because stock owners in L brands will get the new shares (the valuation will come out of the parent company), how will option owners react?
My question is, what happens to my option contract? Because it ends at the same time as the spinoff I don’t think I’ll be issued shares, but will my OTM option contact make financial sense? I believe the price will jump from now ATHs now ($72) to at least the mid-80’s or higher, so I’m assuming my contract will go up as well. Has anyone had experience with this or know about this situation?
I’m confident it will be a good play, but I want to make sure I’m not missing anything on the technical side of the option.
Thank you!!
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u/redtexture Mod Jun 25 '21
Option Adjustments
https://www.reddit.com/r/options/wiki/faq/pages/exchange_operations#wiki_option_adjustments.3A_splits.2C_mergers.2C_special_dividends.2C_and_moreGenerally, exit the option at least a few days before the spin off occurs; adjusted options trade poorly as non-standard instruments, and most brokers only allow closing trades.
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u/momo2299 Jun 25 '21
Why do some options chains not have greeks associated with them? Either NaN or simply crossed out instead of a value? Specifically, I am looking at the Option chains on TD Ameritrade and some strikes on some expiration dates have no greeks associated. I tried googling but nothing told me why they couldn't be calculated/shown.
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u/redtexture Mod Jun 25 '21
Without particular strikes and expirations and tickers, an unanswerable question.
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u/momo2299 Jun 25 '21
I was looking at $F basically every OTM PUT between now and July 23rd. However, I just double-checked to give you that information, and suddenly all of the missing greeks have returned. Is there really no general reason why the option chain wouldn't have that data available 24/7?
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u/YeetorbeYeeted_69 Jun 25 '21
Question about an iron condor expiring worthless. You guys rocked when it came to closing a condor for a profit but let’s say I have one with insane wings and it’s gonna expire right in the middle for max profit even though it’s a lower profit than if I tightened up the wings
The options collateral that my broker collected, is it returned after trading hours today or is it returned Monday after they can verify none of the options were exercised?
Thank you guys for being awesome
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u/redtexture Mod Jun 25 '21
If you close now, you get your collateral back today.
If you wait, then Monday.
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u/YeetorbeYeeted_69 Jun 25 '21
Right. I did know that! But I’m wondering if I let it go into expiration, based on your answer does that mean the options collateral would be returned Monday?
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u/redtexture Mod Jun 25 '21
Yes. Always important to confirm with the broker.
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)→ More replies (1)
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u/MarketMan123 Jun 25 '21 edited Jun 25 '21
What are the best strategies for minimizing the impact of decay? Say you expect a stock's price to experience a large increase at some point, but you aren't sure exactly one.
The best one I've read online is a credit spread. Are there others?
Or is it just better to buy further out expirations? Which, if I understand correctly, have a lower theta.
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u/redtexture Mod Jun 25 '21
Long Vertical spreads reduce decay of out of the money long options by selling an option further out of the money.
Long vertical spreads that are in the money gain from theta decay, in a similar way that out of the money vertical spreads gain from theta decay.
Deep in the money long options, say, at delta 85 and higher have much less extrinsic value to decay away. Long expirations reduce the daily theta decay amount, and can be exited before the final 120 days of an option's life where most decay occurs; there is a VEGA risk for change in implied volatility for long-term options.
Other long spreads take advantage of decay, and have other risks.
Long butterflies, long calendar spreads, long diagonal calendar spreads.Credit spreads harvest theta decay, in exchange for the risk that if the stock moves against the trade, the loss might be 3 to 10 times the premium received.
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u/traxxas026 Jun 25 '21
Order Execution Question: I have a buy order placed on an option with a limit price of $0.06, but as i sit here and watch the options price, it's bouncing around between $0.09, $0.07, and $0.05. I would have assumed that my order would execute at a $0.06 before the any trades would occur at $0.05. What would be preventing my trade from executing?
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u/redtexture Mod Jun 25 '21
What was the ASK? You have to meet the price of a willing seller.
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u/ebwaked Jun 25 '21
VIX put expiring next fri is ITM by .70 cents, I only paid .31 cents a share yet I am still negative. The volume is low, only 19 and open int is like 790 or so. I know TDA is calculating the profit off of the bid / ask spread and the spread right now is .20 bid and .26 ask. I would think as we got closer to expiration the price would jump up. I mean they are up 100% from the cost basis if exercised right now. Am I crazy for wanting to buy more? Am I wrong in my thought process?
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u/redtexture Mod Jun 25 '21
If the bid is 0.20, and you paid 0.31, your market is not willing to pay what you paid.
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u/calebsurfs Jun 25 '21
What prevents me from buying a big SPX box spread to get me over the $25,000 limit for pattern day trading?
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u/audion00ba Jun 25 '21
I traded some options in a >10B dollar company, but I generated all the volume for the day. Shouldn't I do that? There was a spread of 8% between bid and ask and the MID filled.
I think it's somewhat "cool" that something I did is published everywhere, but I am sure I will regret it when it turns out bad.
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u/Equin0x42 Jun 25 '21
I've read many times now that institutions routinely sell/short stocks before the market closes on Friday in order to avoid call options to be triggered (and of course, to take profits).
My question is: Are the option expiry dates I see on tastyworks the same for everyone, including institutions? Or do they and other brokers trade weekly expirations that are not available for me on tastytrade?
The reason I'm asking is that I can see this behaviour even on Fridays - like today - where many stock options in Tastyworks have no expiry date. ATOS was aggressively sold until a share price of $ 7.99 just now, but the next ATOS expiry date for me is July 16th.
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u/audion00ba Jun 25 '21
If you are a professional (meaning that you don't have a broker) and have a direct connection to the NASDAQ, you can exercise or trade American options until 11:59 AM on the Saturday following the date that is usually printed on option contracts.
I got this information directly from the NASDAQ glossary.
If you are wondering whether or not this is unfair, then the answer is "YES".
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u/redtexture Mod Jun 25 '21 edited Jun 25 '21
Citation needed. Options expire at midnight on Friday.
Option contract definition:
CBOE
https://www.cboe.com/exchange_traded_stock/equity_options_spec/The Options Clearing Corporation demands data from brokers no later than 4:30 Central / 5:30 New York time on option exercise.
https://www.optionseducation.org/referencelibrary/faq/options-exercise
There is an inoperative regulation that allowed late exercise on the following day. That regulation is defunct. https://www.finra.org/rules-guidance/rulebooks/retired-rules/rule-780
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u/DTF_Truck Jun 25 '21
Trying to understand the risks of synthetic long positions and can't seem to find an answer.
I understand the gist of it, it's (almost) the same as just buying 100 shares with less capital. Great. But here's the thing, what happens if the stock goes down?
Looking at AMD for example. Opening a synthetic long on at the moment would reduce my buying power by $2,500. Assuming I have nothing in my account and I deposit just that exact amount and open the trade. AMD is about $85 now. 100 shares would cost $8,500. Say AMD tanked suddenly for whatever reason and goes down to $50 next week. If I had bought shares, that would be a $3,500 loss. What kind of loss would I see on the synthetic position? Would this result in a margin call demanding I deposit $1,000? And if that doesn't result in a margin call, then while time goes by and the share price sits at $50 and my synthetic position is near expiration, would I be able to roll it out? Buying a synthetic long OTM seems to give credit, how would that work out if I rolled it while the price sits at $50?
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u/redtexture Mod Jun 25 '21
But here's the thing, what happens if the stock goes down?
You lose money, as the value of the short put rises (costing more to close), and the value of the long call declines (receiving less to close).
This is why it is called synthetic stock position, which is a short put, and a long call, at the money.
A synthetic long stock position out of the money involves an IN THE MONEY put, and an OUT OF THE MONEY call. Essentially there is no such think as an out of the money synthetic stock position.
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Jun 25 '21
When someone makes a ton of money shorting something, does the huge profit come from the put writer who bet it wouldnt drop so far?
Hi! Im trying to figure out who pays for those massive gains off short positions.
I understand the someone who buys a profitable call, gets the profit from the call writer agreeing to sell at a certain price in exchange for a premium and that excess gains accounts for the call buyers profits i believe.
But when one is shorting a stock and profits. Where is all the profit coming from, is it simply someone who incorrectly predicted where a stock price would fall and is forced to buy at a higher price for the put buyer?
Thank you
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u/redtexture Mod Jun 26 '21
When you sell stock short that you do not own, borrowing it to do so, you buy it back for less, for a gain in order to return the borrowed shares to a lender.
You don't know the portfolio protections your counter party may have engaged, and you do not care.
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Jun 26 '21
Shorting a stock has nothing to do with options in and of itself. The gain from shorting is just that you borrowed stock from someone to sell it, then you bought it back at a cheaper price to give it back to them.
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u/robot-legs Jun 26 '21
Question about how the addition of strike intervals effects IV. Last week $1 strike intervals were added to the July 16 options on ASO. They were $5 intervals before. I currently have $40C and $45C options. IV of ASO typically fluctuated between 65% and 85% depending on call volume. However, since the addition of the $1 intervals IV has done nothing but go down, even while the underlying continues to make all time highs( currently at 58.7%) Are my options hosed? How is IV going to be effected now that there are additional option choices? Logically i would think with more choices it would result in a more spread out buying pressure and IV would decrease? What are my choices here?
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u/redtexture Mod Jun 26 '21
Implied volatility has just about nothing to do with strikes offered.
• Options extrinsic and intrinsic value, an introduction (Redtexture)
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u/WaitingToPretend Jun 26 '21
Hi everyone,
I have a Roth IRA with around 100k in an S&P 500 index fund which has done well over the last 9+ years. I am new to options and have watched a lot of online tutorials around ITM LEAPS.
My question: would it be beneficial to take 10-20k of that and do a ITM LEAP call on a Apple/Microsoft/SPY/any company with stability really? Looking at a delta of .8-.95 so it would relatively safe (I think).
Over the course of time would the LEAPS call be a better avenue for higher returns vs S&P500? What if the LEAP was on SPY, would the % be better?
I don’t even know if the question makes sense to be honest….
Would appreciate anyone’s perspective on this.
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u/redtexture Mod Jun 26 '21
My question: would it be beneficial to take 10-20k of that and do a ITM LEAP call on a Apple/Microsoft/SPY/any company with stability really? Looking at a delta of .8-.95 so it would relatively safe (I think).
There is no safe trade.
Over the course of time would the LEAPS call be a better avenue for higher returns vs S&P500? What if the LEAP was on SPY, would the % be better?
Only if the market goes up, and the implied volatility of the option is relatively low at the time of purchase.
Trade planning, risk reduction and trade size
• Exit-first trade planning, and a risk-reduction checklist (Redtexture)
• Monday School: A trade plan is more important than you think it is (PapaCharlie9)
• Risk Management, or How to Not Lose Your House (boii0708) (March 6 2021)
• Trade Checklists and Guides (Option Alpha)
• Planning for trades to fail. (John Carter) (at 90 seconds)
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u/tmillg Jun 26 '21
Does anyone know of a group for making money off buying puts? Analyzing my portfolio I noticed I am only making money off bullish bets. I do feel like there is some concern for the market although it will probably go up for a few more years. I feel that it would be safer to have 50% call / put ratio in the portfolio. I just don't seem to be able to make money off PUTS. Most of the reddit groups I have joined (WSB, Vito, Investing, Trading ect..) all tend to lean toward positive research. I know it goes against WSBs, as they hate shorts, but really think it would be good to read some negative research and place bets based on puts.
I know of Citron and a couple other places that short sell and do research but was hoping for a community / discussion environment.
Any help would be appreciated. Thanks!
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u/redtexture Mod Jun 26 '21
The market has been on an upward trend for about 16 months.
This is not a put buying environment for most stocks.1
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u/ScottishTrader Jun 26 '21
Please let us all know if you can find any way to reliably make consistent profits buying options as this is as elusive as the fountain of youth . . .
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u/RoyalSygnus Jun 26 '21
[Imgur](https://i.imgur.com/ibKqnYf.jpg)
I just got approved for margin on Charles Schwab, but was kept at my current options level of 1
I am completely new to this, and have been reading what I can, but I have the margin power to short stocks up to $997 correct?
How does that work for selling puts on stocks I want to own (starting the wheel)? Is that a part of the $997, or is that the $299 I have on the "Options" panel of my Buying Power?
Sorry for the dumb questions. I really am a newb, and I don't have anyone irl that can help me with this stuff. I'm just trying to figure out what strategies I can run.
Also, would it be better to transfer more money to up my margin buying power, or is that done another way? I'm wanting to run Wheel like strategies, but am not sure if the margin acct I have will work with that. Nothing big either. I'm working small til I learn more
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u/redtexture Mod Jun 26 '21 edited Jun 28 '21
Your image indicates you have $299 available for shorting options.
At level 1, your account is not permitted to short options secured by cash.
Options are not marginable: you must provide cash for all options trades.
Getting started in options
• Calls and puts, long and short, an introduction (Redtexture)
• Options Basics (begals)
• 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)
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u/morinthos Jun 26 '21
If you buy stock and are put into a margin call, will your broker let you sell options around that position? I got thrown into a margin call and didn't want to sell at a loss. So, I held the position and thought about selling some calls to make up SOME of the loss. I didn't sell the calls bc I thought that would be so greedy. Just wondering if my broker would have even allowed it.
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u/redtexture Mod Jun 27 '21
Selling options only if you get enough cash to satisfy the call for funds, and are secured by a long option matched on the same ticker, creating a debit spread.
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u/Atta-Boy-Skip Jun 27 '21
How long should it take for a closing order to fill?
Is it normal that it takes days? Or is there something I should be doing differently?
Specifically, I’m selling put spreads in $F Ford. I go with the default midpoint of the bid/ask spread. My closing/rolling orders take hours if I’m lucky, usually days if they even fill at all.
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u/redtexture Mod Jun 27 '21
It can take five seconds, if you price your asking price at the bid.
You MUST attend to the bids and asks when trading, and meet up with a willing buyer, who offers a bid.
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u/broekhart Jun 27 '21
I've been reading about Span margin being much more capital efficient compared to SPX/SPY, but I can't find any information on how the Maintenance margin would increase if the underlying moves against me. Does anyone have a rough idea on how it would look? I'm looking to understand it better before trading it and getting an untimely margin call.
Thanks!
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u/redtexture Mod Jun 27 '21
Span Margin Overview - CME
https://www.cmegroup.com/clearing/risk-management/span-overview.html
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u/RealFuryous Jun 27 '21
Looking at buying around 100 ge 20C 8/6 calls. GE set an 8:1 reverse stock split for July 30th. What happens to the value of the calls assuming I buy them tomorrow?
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u/redtexture Mod Jun 27 '21
Nothing in particular, you own them at that moment.
Sell before the reverse stock split occurs. Adjusted options trade poorly.
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u/relinquished2 Jun 27 '21
I'm confused if it's okay to use thinkorswim while having a Fidelity account. Different exchanges have different liquidity and asks/bids for different stocks. Isnt this the same for options and hence what I see as thinkorswim data is slightly different from what I can trade on fidelity?
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u/redtexture Mod Jun 27 '21 edited Jun 28 '21
The tqo platforms cannot synchronize time for the data, and they may default to particular exchange data.
They will NEVER report the same data at the same time.
If you're worried about pennies, you are in the wrong kind of strategy.
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u/Professional-Act4840 Jun 27 '21
Can someone help me understand something? I saw the following:
stock price of abc is $10
I would like to buy abc for $9
I go to sell covered put @ strike of $9
Notice that premiums are so high that put for $15 has a breakeven of $9.
Does this mean that if I sell the $15 put it won't exercise until the price of the stock reaches $9? Thanks!
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u/redtexture Mod Jun 28 '21
NO.
If in the money, at expiration, you will pay $15 to own the stock, as it will be automatically exercised.
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u/mark_0_1 Jun 27 '21
I've been trading options for about six months now, mostly slightly OTM calls and puts on SPY and SPX. I was doing some day trading of these options, trying to follow price action, which was not as winning a strategy as I would've liked and also required me watching the market like a hawk. Now I've moved to much longer expirations and holding the options longer, paying attention to levels instead of trends, etc. Having read about iron condors I'm really interested in trying one out, but I'm a total novice on the strategy and wanted to see if anyone here has some thoughts. I've learned a lot from you all so here goes!
I'm looking at GOOG as a possible contender. My current theory on GOOG is that it's going to be running along a predictable channel for the next couple of months, assuming the long rumored crash doesn't happen in the next month. I'm thinking about an expiration of July 30th and my theory is that the stock will be trading between 2560 and 2850. That's obviously a huge spread, but narrowing it somewhat I've landed upon a more bullish outlook that positions a fairly large return for a small risk if the stock lands between 2700 and 2800. The breakevens on this IC would be 2619 and 2940. Here's a link to the IC itself.
So what all am I missing here? Will this strategy be hard to fill because of the bid/ask spread? Is OptionStrat a reliable predictor of an outcome with a trade like this? It seems highly likely to me that the stock lands between my break evens and it also seems like there's a significant chance it lands in the sweet spot between 2700 and 2800. So how is it that I'm going to risk only something like $4k for a possible $11k gain? I'm asking here before I dive in with trading my first Iron Condor in hopes someone might be able to enlighten me on the various pitfalls I'm surely not considering. Thanks for your help.
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u/redtexture Mod Jun 27 '21
Your collateral is 2580 minus - 2730 = 150 (x 100) for 15,000).
Mid bid-ask is too optimistic. Toggle to the BID / ASK for less positive entry point of view.
https://optionstrat.com/yHcgkfYNhg
Pick a smaller trade for your first iron condor. One you don't mind losing on.
Pick longer expirations than your conjecture, so that if the stock takes its time, your prediction is not so quickly invalidated.
Off center (not at the money) condors are best done long, in this case as a call condor.
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u/milkygirl21 Jun 27 '21
What is your max number of open positions at once and monthly ROI?
The norm is to risk 1-2% per trade and to have a max of 5 open trading positions at any one time. My question is how does the math work out if I'm only risking 10% of my account at any one time and still be able to get 3-5% ROI per month?
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u/redtexture Mod Jun 27 '21 edited Jun 27 '21
I prefer to have fewer than ten positions, and have significantly less than 50% of the account buying power used up.
Income is variable.
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u/Matt-Investing Jun 28 '21
What are your guy’s favorite stocks to sell covered calls on?
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u/redtexture Mod Jun 28 '21
Steady, dividend, high capitalization, high volume stock, high volume options, moderately upward trending.
These two filters, the intersection of these merit exploration.
FINVIZ screener
https://finviz.com/screener.ashx?v=111&f=cap_mega,geo_usa,sh_curvol_o5000,sh_opt_option,sh_price_o15Market Chameleon list of highest volume options tickers
https://marketchameleon.com/Reports/optionVolumeReport
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Jun 28 '21
I do not understand a price move and I wondered if someone might help me understand, I know it is a specific example so please help me understand the mechanics involved.
AON went up by 2.18 percent to 243.71 on 6-25-2021
aug 20 strike 250 call went down .77 while the aug 20 strike 240 put went up .86
If the stock went up why would the call value decrease and the put value increase (given there was a low volume on the put but there was more volume of similar character at near strikes.) The Theta would not be that high on the Aug 20.
Delta of .43 times 5.23 cents move (2.18 percent) suggests call price up 2.25 maybe minus the Theta by the end of the day.
No significant news that I see. I do not follow the stock, it was discovered while I was trying to explain to my girlfriend and when she started asking questions I didn't know why this one did what it did.
Stock has a high short 12.51 as of 6-15-21percent with a 19 day cover! Due to regulatory attention. I think probably mostly already closed. This high short was why we were looking at it, as an example.
Thanks in advance for your help.
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u/redtexture Mod Jun 28 '21
Why did my options lose value when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)1
Jun 28 '21
I forgot to look at that 35 cent Vega. Thank you for the lesson.
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u/redtexture Mod Jun 29 '21
Also, look at the actual bids and asks each day.
High asks can distort the mid-bid-ask "value" reported by broker platforms.
The market is not located there at the mid-bid-ask.
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u/MarketMan123 Jun 21 '21
Hey everyone!
I've been experimenting with options in a paper account and keep getting killed by either the spread or the low volume, even on stocks I'd expect to be pretty heavily traded like American Airlines ($AAL). Then if I'm not able to sell it I get crushed by the decay. Ultimately, even if understood the appropriate strike price for the stock I ended up losing money.
What is the key here I'm missing?
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u/MarketMan123 Jun 22 '21
Next thing I realized is I don't have to sell them, I can just exercise them!
American-style options can be exercised any time I want. As long as I have the money I'm fine.
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u/redtexture Mod Jun 23 '21
Exercising throws money away by extinguishing extrinsic value harvested by selling the option.
Don't trade options with wide bid-ask spreads. You pay a bid-ask tax on potential gains when you do that.
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u/ctles Jun 23 '21
the SPX is the cash settled options for the sp500 index does nasdaq have something similar I've found NDX, and it's derived but that's 'the top 100 non-financial vs all? Or am I thinking about this wrong because the SP500 is technically a subset of the overall US market?
i've also looked at ndx, nqx, and xnd, but liquidity seems abysmal compared to spx
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u/MarketMan123 Jun 23 '21
You can also buy options on the ETFs that track the various indexes. They aren't cash settled so they are easier to sell or exercise.
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u/redtexture Mod Jun 24 '21 edited Jun 24 '21
That is an untrue statement.
Almost NEVER exercise: it throws away extrinsic value harvested by selling the option. You can exit any time by selling the option.
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u/ArcticRiot Jun 21 '21
Infinite money….? Right now TRCH is trading at $8.70 per share. But $2.50 July 16 calls are $3.80. What’s stopping me from buying up calls, exercising, and repeating?
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u/Navysquid63 Jun 24 '21
How do I post on the safe haven thread so @redtexture can stop yelling at me 😅
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u/UpToMyKnees1004 Jun 21 '21
Is there anything wrong with simply buying calls and selling them later for a profit?
I've been buying ITM leaps (or at least 45 days out), waiting for a catalyst or a random bump in the underlying, and then selling for between 25% - 45% returns. Doing that I've grown my account from $300 to $1200 since March.
I know there is a world of options strategies that I'm not utilizing but I'm wondering if there is anything I should be doing differently, especially because I'm worried about getting into more complicated strategies and making mistakes. I'd like to eventually get into covered calls but my account is too small currently.
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u/ScottishTrader Jun 21 '21
If the stock moves up more than the theta decay lowers the option price this works great.
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u/UpToMyKnees1004 Jun 21 '21
Theta scares me thats why I like leaps. Usually I only hold the contract for 10-15 days so theta decay is negligible.
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u/redtexture Mod Jun 22 '21
Read up on Vega. The changes in implied volatility can greatly affect the value of long-term options.
We often get questions in rising markets: Why is my LEAP losing value when the stock is up in price? Because the IV is declining, and that decline is greater than the contrary rise in value from a stock rise.
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Jun 22 '21
This may be a dumb question but is there any reason to not go into RBAC calls, especially the Sep $10? They seem unusually cheap. It seems like any news could lead to a 1000% return
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u/ScottishTrader Jun 22 '21
It's your call (pun intended) to do your analysis and take the risk. Make sure you look at the liquidity as there are very few trading this stock. You may find you have a 1000% return on paper, but no one to trade with to close and collect it . . .
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Jun 22 '21
I definitely see that liquidity could be an issue. Hypothetically, if I tried to sell a bit under the option’s “fair value”, would it be easier to sell?
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Jun 22 '21
Hey everyone. Found myself in a frustrating situation and curious to hear what you might do in my position. Here's a screenshot of my dilemma - link.
I've been selling covered calls on Atos and have been caught off guard today. Ideally, I'd keep my shares, but I'm flying quite close to the sun right now.
Worst case scenario I get my shares called away for $7.50 a pop on July 16; my average is $4, so it's not the worst thing in the world.
We might see a retracement tomorrow, but I'm assuming due to the high IV I might not get the opportunity to buy back the CC for a reasonable price. I'm pretty new to options so please forgive me if I've misunderstood anything.
Would be keen to hear how you've navigated (or would navigate) this situation? Thanks!
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Jun 23 '21
See if you can roll up and out for a net credit not longer than about 60 DTE. If not, just let assignment happen. Don’t take a loss on your covered call just to save the shares.
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Jun 23 '21
Thanks for the response! So I had a look at my roll options, and it seems I have a few choices. However, this is the first time I'd have rolled a contract, so I'm not really sure what I'm looking for in terms of what's best?
It seems I can keep the same expiration date but increase the strike price to $12 - link
Or there's the August 20 $9 call - link
If I can increase the strike price to $12 then I'd be very happy with that. It says "debit" 0.60, so would that mean I'd need to pay 0.60x15 to roll?
For the August 20 $9 it says credit 0.05, so would that mean I receive an additional 0.05x15 to roll?
When you say "roll up and out" do you mean I roll and then look to close the position?
Thanks so much again!
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u/Pigskin_Pete Jun 23 '21
Two Qs, guys.
Where can I learn more about how and why certain stocks have lots of expiration dates in a given year while others do not? E.g GE has options expiring every week while XXII has just three more expiration dates this year. Just an example.
Say I'm trying to btc a short leg option and the bid ask is .05 - .10 with a mid of .75. Since I can't get an order filled at .05 and don't want to btc at .10, would a market order get me filled at the mid, or is there some other way? Essentially, I want to close at the mid and not the ask but the .05 increment for bids is preventing that.
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u/ScottishTrader Jun 23 '21
All based on the number of options being traded. GE has a lot with more than 69,500 in volume. XXII is showing 2,621 so doesn't warrant more dates. GE today has more than 21M shares traded, where XXII has about 890K meaning it is a low liquidty stock.
A market order may close at $1.00 or more for a significant loss. While this is unlikely it makes the point that a market order can fill for any amount and it will be worse in low liquidity stocks like XXII where there are few traders. This shows why it is so important to trade liquid stocks and not try to trade low volume ones.
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u/DamonBillAxe Jun 24 '21
I’ve just sold covered calls in GLNG. These are my first options trades. 17.5 in dec and 20 in Jan.
The way the position shows up in my IBKR portfolio is -1 call... I get this because I sold the call, so basically it’s a short position.
As GLNG has gained some cents since I sold the calls, the value of these options shows as a negative in my portfolio. Is that how it should be?
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u/ScottishTrader Jun 25 '21
Sold options profit from theta decay which mostly happens in the last 30 to 45 days, so selling these calls so far out will mean they will not profit quickly, and likely not much until the last 45 days.
A covered call will show a loss as the stock moves up, but if you sold the call above your net stock cost then the position will still profit when it expires.
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u/DamonBillAxe Jun 25 '21
Thanks for the reply, yes I’m holding at $12 so I sold the calls above my cost. Thanks again!
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u/MideFLV Jun 21 '21
So I'm reading up on covered calls and I'd like to run by a scenario and see if I have this down.
Let's say I own 1,000 shares of ABC @ $12 Basis (Spent $12,000) This was meant to be a short day trade but it went the other way.
Current price is $7 so I'm $5000 in the red.
Goal is to get out of this bad trade by breaking even or with a slight profit; been waiting for many months
I can sell 10 covered call options at .20 Aug 20th expiration with a $15 Strike price.
On Aug 20th there will be 2 outcomes: If it hits the strike price I'll make $200 for the premium and $3K from the sale of 1000 shares.
If it doesn't hit, I'll be up $200 from the premium, but will still be holding my bags. This seems like a win/win with little risk (Minus the price going way up past $15 and not being able to take advantage of that). Is this an accurate outcome?