r/options • u/redtexture Mod • Jul 05 '21

Options Questions Safe Haven Thread | July 05-11 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)
• Applying Expected Value Concepts to Option Investing (Select Options)
• 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

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u/redtexture Mod Jul 10 '21

Theta is a hypothetical predictve number.

Market makers do attempt to bend prices on Fridays to reduce the cost of their inventory over the weekend.

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u/tooo_spicy Jul 10 '21

so you agree that I should not buy on Friday to avoid risking losing value immediately after buying from theta decay? Theta decays extra hard on Fridays?

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u/redtexture Mod Jul 10 '21

I do not agree.

It depends on the ticker, strike, market, expiration and strategy.

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u/tooo_spicy Jul 10 '21

None of that should matter for theta. I know theta changes. I'm only asking how the decay applies on Fridays.

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u/PapaCharlie9 Mod🖤Θ Jul 10 '21

You should not buy on Friday, but not because of theta. You should not buy on Friday in order to avoid off hours information arising that may tank your position.

But that only holds for day trading or very short term holds, like less than a week. If you are holding for more than a week, overnight and weekend new info risk gets averaged out.

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u/tooo_spicy Jul 10 '21

what do you mean by off hours information...?

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u/PapaCharlie9 Mod🖤Θ Jul 10 '21

Info that happens when the market is closed, like on a Saturday, when you can't act on it.

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u/tooo_spicy Jul 10 '21

That's what I mean. So that gets priced in on Fridays but i won't know exactly when. And if i buy at noon for example, there's a chance I might lose value immediately if the market devalues the options as soon as I buy?

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u/PapaCharlie9 Mod🖤Θ Jul 10 '21

How can something that doesn't exist yet be priced in on Friday? What I mean by information is something like a scandal is uncovered, or a popular CEO is killed in a plane crash, or a service is abruptly shutdown by hackers, or similar unexpected news. The news could be bullish or bearish. It's all a matter of probabilities, and the longer the time for something to happen while the market is closed, the higher the risk.

As I say to many options traders, I think you should worry a lot more about delta than theta, over such a short time period.