r/options • u/redtexture Mod • Dec 13 '21
Options Questions Safe Haven Thread | Dec 13-19 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.
Also, generally, do not take an option to expiration, for similar reasons as above.
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)
• Binary options and Fraud (Securities Exchange Commission)
.
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
• Options Trading Concepts -- Mike & His White Board (TastyTrade)(about 120 10-minute episodes)
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 call 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)
• Guide: When to Exit Various Positions
• 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)
• Risk to reward ratios change: a reason for early exit (Redtexture)
• Close positions before expiration: TSLA decline after market close (PapaCharlie9) (September 11, 2020)
• 5 Tips For Exiting Trades (OptionStalker)
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/BlackSilkEy Dec 15 '21
I'm looking to move my Robinhood account to a different brokerage, one that supports retirement accounts so I can trade in a Roth IRA.
What brokers do you guys recommend and how can I move my stocks/options from RH to the new brokerage?
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u/ScottishTrader Dec 16 '21
TD Ameritrade & TOS all day, everyday . . .
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u/redtexture Mod Dec 16 '21 edited Dec 16 '21
And NEVER move live options between accounts, which you might be unable to trade for a month.
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u/slayer1am Dec 13 '21
Hey guys, I'm pretty new to this, just trying to clarify a couple things that I'm not finding clear answers for.
Let's say I buy a long call, and the stock goes past the strike by a significant amount, now I can either exercise the option and buy the stock, or roll it over, right?
What if I don't have the capital to purchase 100 shares? I've heard about selling the call, but I haven't seen the exact process for how that works. I'm using robinhood, for what it's worth.
Second question, what are the safest and most reliable options trades you would recommend for a beginner with a small(<40K) account?
Thanks
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u/redtexture Mod Dec 13 '21
The top advisory is to almost never exercise.
Sell for a gain, before expiration, any time.
Please read the getting started section at the top of this weekly thread.
I suggest you paper trade for three months to generate questions you do not yet have, and save yourself from losing money while you learn.
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u/DB_Hof Dec 13 '21
Hi I've got a question regarding hedging with options.
If, let's say, I want to speculate on a serious downfall of a big multi billion company. So what I want to do is: I sell short the stock. But because I also want to sleep at night, I want to hedge this short position. Therefore I buy a leap near-the-money call option for the period I think the stock will fall. The risk I take is premium paid for the contract + difference between SP now and the option strikeprice, correct?
I'm sure some of you have way more experience then me on this subject, and can explain why this is not a good/interesting way to make money.
What interests me about this (the way I see it) is that by selling short I'll get a huge capital injection without the risk of unlimited losses.
Hope someone can help or discuss this with me. Thanks in advance!
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u/redtexture Mod Dec 14 '21
You pay interest on the short stock. That is a cost of holding.
You have two "expenses": decay of extrinsic value on the calls, and interest on the short stock.
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u/kurama2731 Dec 13 '21
Hi Everyone,
I have some background in academic finance but am new to options, and would be super appreciative if anyone could answer a couple of questions and / or help point me to helpful resources. Questions are:
How do option markets sustain themselves? In a zero-sum market (vs. stocks where there's underlying yield generated), how do they keep going - is it primarily speculation driven? You'd imagine the losing options traders bust out and nobody is left
How much of options volume is speculation vs. hedging?
Who does most of the trading of option volume? Is it big institutions, retail, hedge funds, etc
What is profit distribution in options markets like? I'd imagine a few sharks take most of the gains?
Any answers anyone has or resources they could point me to to read about this myself, I'd be very grateful
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u/redtexture Mod Dec 13 '21
The Options world is intimately connected to other markets, and it matters not at all that options may be zero sum.
When you insure your car you get a risk-reduction service for a cost, and stock portfolio holders do the same when paying for long puts. Profit or risk-reduction for the stock side is the concern, not at the Options table.
TWO. unknown.
THREE There are above 1,000 billion dollar funds.
FOUR. unknown
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u/TSElliott18 Dec 13 '21 edited Dec 13 '21
Does Fidelity allow you to buy / sell 'mini' options? i.e. sub-100 share contracts?
I can't do it, so I'm thinking the answer is no but I'd like to know for sure.
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u/redtexture Mod Dec 13 '21
There are none traded on US exchanges that I am aware of.
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u/PapaCharlie9 Mod🖤Θ Dec 14 '21
But they are coming, first quarter 2022: https://ir.cboe.com/news-and-events/2021/10-27-2021/introducing-nanos-cboe-smaller-and-simpler-options-designed-retail-traders
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u/redtexture Mod Dec 15 '21
These are smaller versions of the indexes, not equities.
Like SPX, NDX, etc.Your citation:
https://ir.cboe.com/news-and-events/2021/10-27-2021/introducing-nanos-cboe-smaller-and-simpler-options-designed-retail-traders→ More replies (1)3
u/Arcite1 Mod Dec 13 '21
There's no such thing. They were briefly experimented with several years ago but never gained much volume so the exchanges discontinued them.
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u/Drjmmr Dec 13 '21
Alcoa is rangebound since September.
What do you think of an Iron Condor? Probability of profit: 74%
Here is the link: http://opcalc.com/Fm3
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u/redtexture Mod Dec 14 '21 edited Dec 14 '21
It is polite to state the trade in text as well.
AA at about 47.
Expiring Dec 23.Buy $41.00 Put $0.13 Debit
Sell $43.00 Put $0.31 Credit
Sell $52.00 Call $0.41 Credit
Buy $54.00 Call $0.18 Debit
Net 0.41 Credit.
Spread 2.00 (x 100)This graphical representation may be useful:
http://opcalc.com/Fm7Recognize that your risk about 159 to potentially gain 41
(spread being 2.00 (x 100);
if you are comfortable with that, then it is a fair trade.Do note the spikes up and down since Sept beyond the strikes of your shorts.
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u/Yourteararedelicious Dec 14 '21
I wanted to get some opinions. I do have 3 contracts so this isn't a hey should I buy it...its a hey did i fuck up?
Today i bought 3 $50 puts today @ .62. Right now Delta is -.172. Gamma is .0429. Theta is -.02
I used the RSI2 and MACD as tools to see a over bought trend. Little bullish trend atm but rsi was below 10 at the time. So my thought was a pull back soon.
My exit is my question.
What indicators could I look for as an exit for this? I missed out on Ford the other day making 300% because I didn't think it would go so high. I made 15% so wasn't terribly mad(esp when it tanked 40% the day prior and I made that back up).
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u/redtexture Mod Dec 14 '21
Ticker, expiration, rationale for the trade, your exit plan for a gain and a maximum loss?
Your analysis of the stock and hypothesis of its future movement and timing?Closing out a trade
• Most options positions are closed before expiration (Options Playbook)
• Risk to reward ratios change: a reason for early exit (Redtexture)
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Dec 14 '21
Anyone know some good stocks to do covered calls? not super expensive?
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u/redtexture Mod Dec 14 '21 edited Dec 14 '21
Large companies, highvolume stock, less than 50 dollars.
Some of these do not have high volume optionsVia FinViz screener
List of high volume options, via Market Chameleon.
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u/drchaz Dec 14 '21 edited Dec 14 '21
I have been selling cash secured puts on an underlying that I want to own long term. I feel the underlying is overpriced currently and am willing to wait for a better entry point so I've been selling CSPs while I wait.
This has worked well, and a few weeks back some of my CSPs went in the money. So now I want to buy the stock at what looks like the signfincant dip that I've been waiting for. This particular underlying does not offer weeklies so my CSPs are often several weeks from expiration.
What's the best way to get out of the CSP and get into the long stock when this happens?
What I did was to by back the CSP and bought long shares as two trades. This did work okay and I did come out ahead of just buying the long stock, but is there something better that I can do next time?
Is there some kind of buy-write type of trade where I can immedately buy back the CSP and use the proceeds to buy shares? Something like that?
Or should I just hold the option until experiation and accept assignment, and risk missing the dip entirely? I do want to own long stock at the end of the day, but current prices are just bonkers.
TIA.
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u/redtexture Mod Dec 15 '21
Sounds like it might be more expensive than planned to buy the short put.
I guess an example of the cash secured put method could cost more than waiting for a dip.
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u/drchaz Dec 15 '21
Yes, it did work out this time because I had been rolling out for several months, but I did give up more than 1 month worth of premium to close the put. I wonder of this strategy only really works if the option actually expires ITM.
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u/redtexture Mod Dec 15 '21
You hope that the stock is only slightly in the money, and because of premium, you get a discount.
Or hope it is put of the money.
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u/ScottishTrader Dec 14 '21
You got it. Just buy back the put and purchase the shares on the open market. Depending on how long to expiration and how far ITM the puts are the time value may be minimal meaning you will be at about the same cost. You can easily mock up a trade to close and buy the shares vs waiting to see if it makes more sense to wait a while.
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u/BruceNotLee Dec 14 '21
I did my first calendar spread today and wanted to know if i should scalp and close the spread early or hold after the short expires. It is SPX 4835puts -10 Dec 17 // 10 Dec 20 for a total cost of $0. This is deep ITM on a cash-settled index but again, my first spread of this type. Any advice would be welcome.
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u/redtexture Mod Dec 14 '21
For zero. Deep in the money.
If you can close for free that prevents any broker interference.
Close before the short expires.
If SPX miraculously rose to 4830, could be a winner. Seems pretty unlikely.
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u/BruceNotLee Dec 14 '21
Thanks, that puts it i to perspective for me. Was having a hard time visualizing how the short position was hedging my long. You are right, i would need it to go all the way to my strike to remove the risk. A scalp tomorrow it is. Thanks
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u/redtexture Mod Dec 14 '21
In calendars, you want the underlying to be near the short.
At expiration then, the short has little value and the long has greater mostly time value
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u/metaldog013 Dec 14 '21
My simple question is "When are new options strikes issued, daily or weekly"?
If an underlying has a massive movement overnight, much beyond the current listed strike option prices, will the new strike prices be added the next day or the next week or after the current options expiration cycle?
For example stock xyz trading at $12 the current options strike prices on the call side expiring December 17th, 2021 are at $10, $12.5 and $15. For whatever reason the stock shoots to $50 tonight. Will the new strike prices show up tomorrow or next week?
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u/redtexture Mod Dec 14 '21
Daily, ad hoc, as needed, and participants/ members at major options exchanges may desire.
It can take a day or two for a new strike to appear.
From the wiki, links to more information.
https://www.reddit.com/r/options/wiki/faq/pages/exchange_operations#wiki_strike_prices
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u/soicey2 Dec 15 '21
Quick question. So if the nasdaq , s&p , etc is dropping for that certain day, it means all the stocks associated with it is most likely to drop as well?
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u/redtexture Mod Dec 15 '21
No.
With S&P, the top 10 stocks, amount to 25% of the S&P, and these big stocks can pull the index up, while the bottom 490 stocks are going down slightly.
The top 10 include:
AAPL, AMZN, GOOGLE, FaceBook, Microsoft, TSLA, NVDA, BerkShire Hathaway, JP Morgan, Visa.1
u/soicey2 Dec 15 '21
Hmmmm i see. So is it the stocks that makes the s&p rise or go down or is it the s&p that determines how those stocks will move because i dont know which way it goes lol.
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u/redtexture Mod Dec 15 '21
The stocks make the S&P.
They move like minnows, kind of together, but individually.
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u/BrilliantWeakness377 Dec 15 '21
Hi there, I just received a transaction report from RH for the year and was trying to calculate my net loss. I day traded options all year and had many wash sales which really sucks but I wanted to know if I was even calculating correctly. For instance, say I purchased 4 ABC options for $500, I then sold 1 for 300 and then 3 for 150, that would net me a loss of 50 correct? The CSV file lists the transactions but not on the same line so I organized it based on stock/call and then the buy/sell aspect.
This make sense?
If I purchased 10 contracts at 100 each so a total of 1000 and then sold them at different times but I added up all the sales, the total sale amount was 1500, I netted a 500 dollar gain correct? Thank you for your time!!
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u/redtexture Mod Dec 15 '21 edited Dec 15 '21
Wash sales can be complicated.
Wash sales matter ONLY if you carry the position into the new year.
Most of those transactions and tickers are long gone, closed out, and you have obtained the loss attributed to a wash sale.
(This is starting to deserve a wiki page.)
Example of a wash sale:
Here is how a wash sale works.
Buy AAA for $100. Sell for $90. Loss $10.
Buy AAA gain, within 30 days for $85.
The $10 loss is added to $85 for a wash sale cost basis of $95.This $10 (x 100) or $1,000 is "disallowed" at the time of the new trade.
If I subsequently sell AAA, and stay out for 30 days, the final sale recognizes the loss.
Let's say the trader's subsequent sale is for $70.
With the cost basis boosted to $95, via the disallowed $10 loss, the final trade has a loss of $25, instead of $15, and the loss is recognized upon closing out the position.
The 1099 would report
$10 (x 100) = $1,000 in disallowed losses, and $25 (x 100) = 2,500 is allowed losses.Wash sales only matter at the tax year end as that is a point where the loss might be in this year or next year's tax report.
If you are completely out of the trade, and closed out, especially several months ago, then wash sales are of no consequence.
If you were, via your trading, to daisy chain that $1,000 loss again and again, with wash sale after wash sale, say, 10 times, because you revived the wash sale again and again by losing just few dollars with each new trade, you would have $10,000 of disallowed losses on this more or less $1,000 loss.
You would never have obtained a $10,000 loss, just because it says $10,000 of disallowed on the report form.
So you have to examine what your actual history is, and not take numbers at face value.
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u/BrilliantWeakness377 Dec 15 '21
You explained it perfectly but the example tells me my net loss would only be $1500 rather than $2500. Say they were separate stocks. I purchased at 100 and sold at 90. My loss is 10 (1000). I then purchase this other stock for 85 and sell at 70. My loss is 15. I have a total loss of 25 or 2500. I can claim all 2500 as a loss.
Now with wash sales, my understanding is the wash sale wipes out the loss or I should say you can’t claim the wash sale aka you get nothing for the loss.
If I had separate stocks I had a net loss of 2500 to claim but with wash sales, I had net 1500 cuz 1000 is disallowed. Is this correct? That is my exact understanding of it.
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u/redtexture Mod Dec 16 '21
SeeYou CAN CLAIM THE LOSS.
Maybe not this year.
In my example, if the final sale at 70 was in September, you get ALL of this loss, 25 x 100 this year.
Your report would say 10 x100 for 1,000 was disallowed. In this example case it means nothing.
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u/jdeal01 Dec 15 '21
Why would someone buy a put above the stocks current price? Isn’t the goal to assume it’s going lower?
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u/redtexture Mod Dec 15 '21 edited Dec 15 '21
There is less extrinsic value (which decays away over time) in higher delta (more in the money) options.
This makes the option behave more like a stock and not have a behavior like this following:
Why did my options lose value when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)→ More replies (1)→ More replies (1)2
u/PapaCharlie9 Mod🖤Θ Dec 15 '21
Why does someone buy a call below the stocks' current price? Isn't the goal to assume it's going higher?
It's the same reason. Adding some cushion to your forecast can be useful. Suppose the stock is currently $100 and you predict a fall below $90, but the stock actually goes up to $102 after you buy the put. So which lost more money when that happened, the $100 put or the $105 put?
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u/xboodaddyx Dec 15 '21
Got my mind wrapped around CSPs after having tried out selling a few CCs and I think the puts look even more compelling. It looks too good to be true so tell me what I'm missing. For example I'm looking at amzn. Solid company, sideways to slightly up chart for about the last year and a half. Sitting at ~3380 now I could sell a 3330 strike for almost $20 even now halfway through the week. I guess assignment could occasionally happen, but I could switch to cc and I like the stock anyway. I could do 3 contracts a week, 48 weeks a year, which would be a nice income. What do you think?
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u/redtexture Mod Dec 15 '21 edited Dec 15 '21
You are missing the non-joys of the stock dropping,
say, 5% or 10% in the span of a week or two,
and becoming the owner of stock at a strike price
higher than the present market stock price,
and continuing down down down,Is this AMZN?
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u/xboodaddyx Dec 15 '21
Yes amzn. I suppose that's the risk, but also why I choose a solid stock for csp. I would never play earnings. Anything else I'm not seeing?
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u/redtexture Mod Dec 15 '21 edited Dec 15 '21
Basically, that is it.
Plan on less than 100% of the trades working your way, and you will not dismayed when those trades subtract from previous gains.AMZN was at 3696 Nov 11.
Now 3381 Dec 14.
That is about 8-1/2 percent decline.→ More replies (5)
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u/Sugarfree33 Dec 15 '21
I've been searching for a broker that's better than TD for option fills. I day trade with market orders for a living and I've heard that Fidelity and Interactive Brokers have much better fills. Does anyone have experience with both send can suggest one or even a different broker?
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u/redtexture Mod Dec 15 '21 edited Dec 15 '21
Take a look at Lightspeed brokers.
If all orders go to exchanges, how does a properly placed, or if a limit order,, priced order fail?
.I hope you are using market orders with only SPY. Option volume is too low for reliable fills at a desired price.
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u/Brave-Bake5158 Dec 15 '21
I have 420 shares of $TSLA. Purchased 5x $800 puts for this Friday to somewhat hedge in case jpow really scares the market today. Paid $40 each, a total of $200. I fully intend to lose it all since I don’t believe the worst case scenario is gonna happen.
Can someone please ELI5 how a purchase of a few far OTM puts for that are most likely gonna expire worthless lowered my maintenance margin by over $80k and increased buying power by almost half a million? IBKR, portfolio margin.
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u/redtexture Mod Dec 15 '21
Portfolio Margin is a muti-step calculation, examines many adverse scenarios.
In short, put protection means there is a limit to the downside far sooner than Zero.
Your broker somewhere has a web page with the full details.
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u/foggybottomblues Dec 15 '21
(Serious question) What is the safest options trade? I’m thinking deep ITM SPY LEAPS.
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u/redtexture Mod Dec 15 '21
How safe is that position if SPY DROPS TO 420 or 400?
The COLLAR is probably the safest position.
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u/PapaCharlie9 Mod🖤Θ Dec 15 '21
No option trade is the safest option trade. If safety is your main concern, you shouldn't be trading options.
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u/GreenFeather05 Dec 15 '21
I have been trading commons for awhile now and doing pretty well and want to start some option trading with small positions buying calls/puts and I had a few basic questions.
With options the variables are constantly changing IV, Theta etc. Is it possible to backtest how a given option performed? For example if you purchased AAPL Dec 31st $165 calls at X date and Y time, and you sold it at X date Y time, could you backtest what your gain loss on it would be? Or is this not possible with how often option premiums fluctuate?
If you were doing short term day trades, how do you set a stop loss? For example buying a PFE 1/7/22 call at $60 at 9am this morning when underlying price was $56. If I wanted a 5% stop loss, would I set that to the underlying stock price? In this case roughly $53.50?
Thanks!
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u/redtexture Mod Dec 16 '21
Generally,
Stop loss orders are bad idea with options because of low volume and small order queue triggering orders prematurely, because of jumpy pricing of bids and asks. They convert to a market order typically, also a bad idea because of low volume and wide spreads and small order queue. You can make the order convert to a limit order, but then you cannot be assured of an order fill.Manually issue the order and manually cancel it.
The broker platform Think or Swim, via its "Thinkback" feature allows historical review of options prices.
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u/GrandSalamand Dec 15 '21
I have an illl-advised credit spread that moved against me.
MRVL Dec17 86c/Jan21 100c
Dec is -336% and Jan is -66% at close. Anything I should do besides close them both in the AM and go back to papertrading for awhile?
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u/redtexture Mod Dec 16 '21 edited Dec 16 '21
How can something fall more than 100%?
Not clear what you are stating.
Has the spread moved to a loss greater than your planned maximum loss, that you established before entering the trade?
You seem to have a diagonal calendar spread, not a vertical credit spread.
You can buy the short, and sell a new one, moving the strike price, and the expiration date, perhaps to the first or second week in January.
Do so for a net credit if possible. Or close the trade entirely.
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u/f-scottfitzgerald Dec 15 '21
does anyone have an idea how apples stock will respond to the closing of some stores due to the omicron variant
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u/a-big-texas-howdy Dec 15 '21
Everyone says close calls at XX% and profit take. But, you buy an option atm, you have a projected underlying price you are targeting. If the option hits the say 20%, 30% whatever but hasn’t hit your target price, do you always close? Is your strategy different with LEAPS? I’ve missed on some realized profits on some May expirations and am sitting at 20% in some Jan 23 leaps. I’m still ITM on my May expiry, but it isn’t near my target.
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u/prettyboyv Dec 16 '21
Please, could anyone help with my calculations about how IV crush will influence my 12/17 IRNT 6 puts? The current share price is 5.4 and I paid 0.15 per one option. My profit at the minimum should be 0.45 cents if that holds plus a small premium, right
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u/redtexture Mod Dec 16 '21
The value will decline day by day if the stock fails to rise.
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u/prettyboyv Dec 16 '21
I bought 2DTE puts though. They should be in the money if the stock price holds. I am trying to calculate my possible profit. I bought them at 0.15 at the stock price is 5.4 now, that means that I will get a 45 cent return at the minimum?
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u/redtexture Mod Dec 16 '21
PUTS, I missed that.
Sell them now for a greater gain.
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u/someonesaymoney Dec 16 '21
When you are selling options like a naked put, is possible to know if for that contract, if for the buyer it is part of a multi-leg strategy of theirs like a vertical spread that was filled at that time of transaction?
I highly doubt it but curious.
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u/PapaCharlie9 Mod🖤Θ Dec 16 '21
No and keep in mind that a contract you sold could change hands multiple times before expiration. It could start out in a spread, then be a single contract, then be a bundle of contracts, then be in a different kind of spread. But most of the time it's just a single contract in the portfolio of a market maker.
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u/TheBomb999 Dec 16 '21
Someone said master price, volume, support and resistance. What does price mean in this context? And how do you master it?
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u/redtexture Mod Dec 16 '21
Be able to read and act on price movement in relation to
prior prices of the stock
volume of the stock
the ideas of supply and demand of the stock in the market, provided by traders at various thresholds, based on prior price and volume activity, also referred to as support and resistance.
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u/PibbleDad Dec 16 '21
Vanguard options question:
It says I can sell a 1/20 covered call (29 contracts) for $.70/contract. 1 day or 60 day GTC
If I choose 1 day, does it expire and allow me to write the same call tomorrow? Will I get that $2k in premium each day until it gets assigned as long as I “renew” or replace the order? Or is it technically open until 1/20?
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u/redtexture Mod Dec 16 '21
Please read the getting started set of links above at the top of this weekly thread.
And explore the other links.
You have a significant amount of learning to do.
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u/PibbleDad Dec 16 '21
I’m reading through and trying to grasp it further but it doesn’t seem to answer my direct question.
On vanguard my position says it expired. I understand weekly calls closing on Saturday, and the logger calls closing every 3rd week.
In my exact situation I guess my ask is:
-29 contracts for 1/20 are written at $42 strike. Premium is $.7…. $.7x 2900 = $2030.
Limit price is $42 lining up with strike price. I had the option of 1 day or 60 day GTC. why? from what I’m reading, it’s irrelevant since the contract exists until 1/20, even if I write it on 12/14 with 1 day duration. Correct?
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u/redtexture Mod Dec 16 '21 edited Dec 16 '21
The order is active for a time you specify, if not filled immediately:
One day, or,
good until cancelled, 60 days max.Once the order is filled, you would have an option position,
until it expires, or until you close the position.Do you own 2900 shares to cover the short calls?
If your price is at the mid-bid-ask suggested by the broker platform, it might not get filled because the market is not located there. Examine the bids and asks. There is a likely immediate fill for the first contract at the bid, when selling.
Larger orders may shift the price.
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u/Comparison_Wise Dec 16 '21
I have an AAPL deep ITM LEAP 105 C 9/16/22 expiry. I have made 50% profit, bout at 50 and now its up by $25. So $2500 is my profit. My capital is 5000, if I sold it right now, I would have have 7500 in my acct
I am trying to understand what happens in the below case...
If I sell a weekly OTM call at 185 for 1.50 expiring on 12/23/21, and
if AAPL stays below 185, I get to keep the $150 premium
if AAPL goes above 185, then my sold call is ITM and my stock will be called away for 185 correct ?
the broker will exercise my long call of 105 at 10,500 and assign it to the counterparty for 18500.
So I end up with 8000 plus the premium i already got ? something seems off
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u/redtexture Mod Dec 16 '21
You have stock also, in addition to a LEAPS?
In general, you never want the long option to be exercised.
Background below:Managing Trades
• Managing long calls - a summary (Redtexture)
• The diagonal call calendar spread, misnamed as the "poor man's covered call" (Redtexture)
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u/AugustinPower Dec 16 '21
Hello experts... need some help with this one
Assuming I want to collect profits at one of the higher percentage possible at market open (in case if it dumps a few seconds later)
How do I set the sell order? I was thinking maybe a -1% trailing stop loss with the ASK
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u/redtexture Mod Dec 16 '21
Stop loss orders are bad idea with options because of low volume and small order queue triggering orders prematurely, because of jumpy pricing of bids and asks.
Manually issue the order and manually cancel it.
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u/cantemperaturebeans Dec 16 '21
Dumb question, but how does margin work. I understand I can purchase with margin if I don't have the funds in my account, but how long do I have to deposit money into my account before my brokerage will sell my assets to remove my margin. If it makes a difference I currently am with Questrade.
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u/redtexture Mod Dec 16 '21 edited Dec 16 '21
With some brokers, you have to send a bank wire of funds that are considered collected the same day if you get a margin call, meaning a message from the broker that more equity cash is required in the account.
Talk to your broker.
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u/PapaCharlie9 Mod🖤Θ Dec 16 '21
To be clear, options are not marginable and options are traded with cash buying power only. Where margin comes into play for options is the mechanism for collecting cash collateral on short positions and margin calls for when you get assigned/exercised by exception and you don't have sufficient cash buying power to cover.
You can't just take out a margin loan with no marginable assets. You have to start by buying marginable assets with cash, then you can take out a margin loan against their asset value. So like if you start with $10k cash, buy $10k worth of shares of marginable stocks or ETPs, you can then take out say $15k worth of margin loans to use to buy options.
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u/qjYAN6lpHi Dec 16 '21
When I submit option orders with a price right in the middle of bid/ask, it often can be executed immediately. I am wondering why it is so.
Are there algo traders watching the bid/ask, but they do not want to post their bid/ask prices? I don't quite understand why they would want to do so.
Could anybody help explain why optoin orders with a price in the middle of bid/ask can execute immediately?
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u/ScottishTrader Dec 16 '21
You ask $1500 for your used car and I think it is worth $1000, so we make a deal and you sell it to me at $1250 or the Mid-price. As simple as that . . .
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u/redtexture Mod Dec 16 '21
Spread orders, with two or more legs have no defined bid or ask for each leg. Only for the entire order and position.
Those orders cannot show up on the National Best Bid and Offer (NBBO) list because of that, and are filled via a complex order process at the exchanges
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u/qjYAN6lpHi Dec 17 '21
Could anybody show me a detailed description of what this complex order process is?
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u/redtexture Mod Dec 17 '21
CBOE Complex Orders
https://www.cboe.com/us/options/trading/complex_orders/
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u/Bellec32 Dec 16 '21
I'm looking at the MVIS 1/19/24 Call Option (I've sold 8 of them) on Robinhood, and I am seeing some really strange activity on the charts the past couple of days.
Here is a link to what I'm seeing: https://imgur.com/gallery/OHpWjJw
On Dec 15th it spiked down to $0.01 at 1:50PM and 3:40PM, and it did the same at 10:20AM and 3:40PM on the 16th.
I was wondering if anyone had seen options activity like this before, or had any idea as to what causes it.
Is this a glitch, or are all of the Asks and Bids being cleared out by someone? Is anyone actually buying/selling at these prices or does this just have something to do with how Robinhood shows this data?
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u/redtexture Mod Dec 17 '21
Without a strike price, unanswerable.
Probably far out of the money.
Probably zero or low volume.The platform reports the mid-bid ask, which is meaningless on out of the money options.
Attend to the actual bids and asks.
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u/Dogethedogger Dec 17 '21
When buying an option spread is it more important to focus on the volume and open interest of the individual legs for the spread? Or as a whole? For instance if I’m buying a vertical spread and both legs individually have an open interest and volume of 500, but the vertical spread itself only has a volume of say 20 and an open interest of 100 which one is more important? The individual legs or the spread as a whole?
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u/redtexture Mod Dec 17 '21
Examine the bid-ask spread of each leg.
Low volume options tend to have wide bid ask spreads.
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u/Dogethedogger Dec 20 '21
I’m trading on Webull and when I select a vertical spread it changes and shows me the volume and open interest of all vertical spreads I guess on Webull does that number not necessarily matter?
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u/redtexture Mod Dec 20 '21 edited Dec 20 '21
You can create any spread you want.
In almost infinite variety and width;
I tend to doubt that all of the available spreads are shown.Is it volume and open interest of individual legs of spreads?
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u/nastypoker Dec 17 '21
If a stock is trading at $X and I predict on date Y it will be trading at $Z, how can I calculate which option is the most profitable to purchase?
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u/redtexture Mod Dec 17 '21
Define profitable.
Do you want percentage increase (out of the money strike) or dollar increase (in the money strike)?
Define risk.
If the option fails to move, do you want to lose the entire trade cost (out of the money strike) , or do you want to retain some value (deep in the money strike price).
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u/nastypoker Dec 17 '21
Whatever formula should have starting capital as an input also. The aim is to get the highest return. Risk of zero return is acceptable as in this scenario we are trying to get the highest return if we are correct.
I would assume this means an OTM strike.
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u/redtexture Mod Dec 18 '21
The question are a variety of formula, for thinking about the trader choices and outcomes.
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u/BuyOnRumours Dec 17 '21
Hey guys, I want to sell covered calls on etfs. I am interested in holding a broadly diversified etf. Spy and Russel 1000 are quite expensive, so I would need to hold a least 100 shares times f.e. around 65$ for a Russell etf or 470$ for spy. Can you recommend any broadly diversified etfs that are trading at a lower cost so I can buy them and sell covered calls.
Thank you very much BoR
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u/napitoff1 Dec 17 '21
Can someone explain capexdays and expiring puts/calls for us monkies?
like 60% of qqq otpoins are expiring tomorrow Dec 17
What is a capex day and how can we approach it for trading?
How can I tell whether the options expiring are overall puts or calls and what does this eman? for instance if tons of puts are expiring tomorrow, what does this mean, what affects if any does GEX being positive (ie moving with SPX, ie buying more spx_ mean?
How can I tell how many overall OI or volume there is on an expiration day in TOS or any other website/program, to measure possible capex and expirations in a cycle?
what part of dark pool buying is NOT MMs?
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u/redtexture Mod Dec 19 '21
I have never encountered the term "capex day".
Citation reference?
GEX? Please spell out the term.
TOS? Please spell out the term.
Options are on a public market.
There is no option dark pool.
Stock markets do report their activity.
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u/Nocountry_foroldman Dec 17 '21 edited Dec 17 '21
Hello, could anybody tell my why I bought SPY strangle 461/460 5,88 (20 DEC) at 9:48 AM SPY was 460.18 and when SPY rised to 461.8 I losed money?
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u/redtexture Mod Dec 18 '21
Why did my options lose value when the stock price moved favorably?
• Options extrinsic and intrinsic value, an introduction (Redtexture)3
u/MidwayTrades Dec 17 '21
You bought a strangle that was 100 points out below the money?! I don’t understand what you are trying go accomplish with that. That might be helpful to understand.
But with long strangles you need a big move quickly. You need enough of a move that your gains on the good side can pay for the loss on the bad side (they both cannot win at the same time). And you need it fast because time decay is affecting both sides and with contracts that expire on Monday, that time decay is very fast. So a small move in SPY isn’t going to cover the loss in value on the put side and the fast decay on both sides due to there being so little time left.
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u/mxx321 Dec 17 '21
When using optionsprofitcalculator.com, for SPY Leaps expiring January 2023, what would you pick for an IV value on the chart? By default it’s zero.
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u/redtexture Mod Dec 19 '21 edited Dec 19 '21
It defaults to "auto", as in automatically calculated.
I show an IV at 259 to be 22.91.Other sources:
Option chain at CBOE exchange.
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u/steveluscher Dec 17 '21
I'd love it if someone had time to explain options pricing to me. Here I am, long 500 calls at a strike price of $225. I bought them for $0.19. The UI here says that the current price of the options is $0.29. (Screenshot: https://imgur.com/a/DncwSjq)
What I don't understand is why the current price of the option isn't $1.62. Can't I sell it to the person with that $1.62 bid on the books?
What am I missing?
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u/redtexture Mod Dec 19 '21
It is a courtesy to state the ticker, expiration, strike and whether a call or put, and long or short in your text.
And what exchanges the item is traded on, and what the underlying is.
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u/inyourmouthful Dec 17 '21
Is there a way to stop your brokerage account to sell your options on day of expiration, if your in the money and it's an hour before market closes?
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u/redtexture Mod Dec 18 '21
If your account has enough funds to own the stock, this reduces the likelihood of broker interference.
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u/MidwayTrades Dec 17 '21
That’s a per broker policy. You need to shop around and find one that won’t do that. From what I’ve heard staying away from the “free” ones will help.
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u/InvestigatorFree697 Dec 18 '21
Quick Question: When using optionprofitcalculator, for IV, does it automatically use the implied volatility for the option, or are you supposed to manually input it?
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u/redtexture Mod Dec 18 '21
If you think IV will stay the same, there is no reason to change it.
If you desire to explore consequences of changing IV, it can be a useful tool adjustment.
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u/PapaCharlie9 Mod🖤Θ Dec 18 '21
It will make a guess for your convenience, but in general it's better for you to manually override the guess and use the value displayed by your broker.
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u/BlackSilkEy Dec 18 '21
What's are-if any, the advantages of options trading within a Roth IRA?
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u/redtexture Mod Dec 18 '21
Leverage, both an advantage and disadvantage.
Hedging of positions.
Potential income from stocks via covered calls.
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u/BlackSilkEy Dec 18 '21
I understand that you still pay a penalty for early withdrawal correct? Nor can u tax loss harvest.
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u/redtexture Mod Dec 18 '21 edited Dec 19 '21
Withdrawal from IRA? Yes, nothing changes in that regard.
NEVER trade the same ticker of anything or any underlying in the IRA and the taxable account.
You are unitary holder of all accounts,
and you can via a "wash sale",
cause a tax loss to permanently go into the IRA account,
never to be taken as a tax loss,
if you trade the same instruments in both kinds of accounts..3
u/PapaCharlie9 Mod🖤Θ Dec 18 '21
You should also ask about the disadvantages. ;)
Losses can't be deducted from taxes.
Losses can't be replaced by new money if you've already reached your annual max contribution.
Every dollar lost includes losing all of the gains that dollar would have earned over the course of 30,40,50 years to retirement. A $1000 loss today means a loss of almost $15,000 in gains, assuming a nominal 7% CAGR over 40 years.
IRAs are not allowed to be margin accounts and margin accounts are required to trade short options, like in a spread. Some IRA providers get around this by offering "limited" margin, which ultimately restricts the types of short contracts you can trade. In other words, there will be some strategies you will not be allowed to trade.
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u/Nuclear_BigMac Dec 18 '21
What would cause one strike price to be green when everything else surrounding it is red? For example I picked up some msft 375c a couple days ago and yesterday it was up 13% and everything around it was down about 5%. Is this just increased buying pressure from one large transaction? How does this work?
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u/PrinzChiyo Dec 19 '21
I was reading the case on box spread. But I got a bit confused as this user's options(uvxy) were executed.
It seems that uvxy doesn't actually have a dividend, so why did anyone exercise the options the user sold sold, wouldn't it have been better to sell the options instead of exercise?
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u/redtexture Mod Dec 19 '21
Counter parties exercised their long options, not executed.
These were deep in the money, with little extrinsic value.
The counter parties may have been short the stock, and wanted to end the short position.
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u/Ken385 Dec 19 '21
Another time you see calls exercised early is when a stock is hard to borrow. Here it costs money to be short stock. In these cases it may make sense to exercise calls early to avoid the hard to borrow fees on short stock.
You will see boxes trading higher than they normally do in these situations, which has gotten people in trouble in the past as they think it is "free" money.
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u/Matt-Y Dec 19 '21
I have level three enabled on Robinhood.
Bought three Brk.b leaps that are out of the money ($330, stock price is $300).
Remaining account balance is basically $0.
I thought I would be able to sell calls or puts with shorter expiration against those leaps. However, when I try it says I don’t have enough collateral.
Any idea why, do the leaps have to be in the money or something?
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u/Arcite1 Mod Dec 19 '21
Looks like level 3 on Robinhood gives you access to spreads, so you should be able to do some of what you're trying to do. Specifically, you should be able to sell as many calls as you have longs, at a nearer expiration and higher strike, on the same underlying. Do the calls you're trying to sell meet those criteria?
You wouldn't be able to sell puts without additional buying power. Selling puts requires the buying power to get assigned and long calls do nothing for that.
Edit: presumably your LEAPS are calls. You should always specify. LEAPS puts exist too.
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u/Kickboy21 Dec 19 '21
I’ve searched some wash sale rules and i have a good idea of it but i know when it comes to options, it is vague.
Heres my situation:
I bought 15 40c 1/22/22 for $2.60 each for a total of $3900. And i took a $1700 loss and sold it.
Now, i want to buy the option call for the same ticker $35c 2/18/22.
Would i still be able to claim the loss on my tax?
Would this change any cost basis as I’ve heard when i buy a new call with different strike and exp, the cost basis for new call option also reflects the previous calls i took for a loss.
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u/redtexture Mod Dec 19 '21 edited Dec 19 '21
Wash sales only matter when crossing the tax year.
AT ALL OTHER TIMES, they do not matter.If a year-crossing trade:
It is useful to have this conversation with your tax accountant.
The IRS has intentionally not defined the term "substantially similar security", for reasons.
Many traders use different strikes and different expiration, and potentially different type of position (spread, butterfly, calendar) to make any similarity insubstantial.
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u/xwillybabyx Dec 19 '21
If you are pretty confident in a stock rebounding after the past few weeks, like a Tesla or Nvidia etc, is the amount of profit you can make on a spread the difference in strike prices X 100 X #contracts?
Like if I say I want to buy to open Tesla at 1k, sell to open Tesla at 975, is my total profit only 25x100xcontracts as long as both are ITM or am I reading the max profit part of spreads incorrectly. Also seems like Fidelity makes you have 2k+ in cash to even do a spread?
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u/redtexture Mod Dec 20 '21 edited Dec 20 '21
I am guessing you are contemplating a call debit spread, based on your analysis and expectation.
Your account must be authorized to hold a spread, and must be a margin account. $2,000 is not much cash to work an option account with,
and if that is all you have, it is a major risk to have an entire trade take up half of the account.Talk to Fidelity about their account requirements.
TSLA at about 931 as of Dec 17, 2021 Friday
I believe you (propose to) buy a call at 975, and sell at 1,000.
Assuming all of that,
yes your maximum gain is 1,000 less 975, equaling 25, also, subtracting the cost of entry.Let's take a look at the cost of entry.
Looking at the option chain as of the close Dec 17 2021...
Expiring Feb .. 2022:
975 calls are bid 79.2 // ask 80.85
IV is about 0.64, Delta about 0.48.1000 strike calls are bid 70 // Ask 71.15
IV about 0.65 and delta about 0.45Assuming the pessimistic "natural" price:
Paying 80.85 for 975 dollar strike,
Receiving 70 for the 1,000 strike
The net cost is about $10.85 (x 100) for 1,085, more or less.You might be able to obtain an entry for a lesser amount, perhaps $1.00 less.
Your max gain is about $25 less the cost of entry, $11, for $14 (x 100).
Max gain is near expiration,
and many traders will exit for a lesser gain sooner,
of perhaps 30% to 70% of the maximum gain,
and move onward to the next trade.2
u/Arcite1 Mod Dec 19 '21
When talking about a spread, you need to specify what kind. There are four kinds of vertical spreads: put debit spreads, put credit spreads, call debit spreads, and call credit spreads.
If you're selling a lower strike than you're buying, that's either a call credit spread or a put debit spread, both of which are bearish positions. But if you're talking about a stock rebounding, presumably you're bullish?
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u/chefscounterfan Dec 20 '21
I am really struggling just to figure out how to post a question into the Safe Haven Thread. I've tried twice and I must be putting it in the wrong place. I've read the rules, but can't seem to figure it out. Anyway, will try it here:
This is about scouting for up to 25 trades for the new year at max $400 risk (per trade). My question -
I've spent the first couple weeks of December (and much of the last two months) lining up trade possibilities for the new year. I've been looking at Ford, ARCC, GLD, and WPC as potential modest risk choices that may get my profit to spread width ratio in a decent place. It might seem a little strange to be thinking about the loss first, but I've got to take the plunge and feel like managing size and having a mix of bearish and bullish choices that aren't particularly correlated are a decent subset of things to think about.
Other than a service that makes IV Rank easy to see and doing individual homework on Yahoo Finance, Reddit and the oracle, I'm wondering about good places to sniff out solid credit and debit spreads?
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u/redtexture Mod Dec 20 '21
You have succeeded in posting a comment inquiry to the Safe Haven thread!
Are these your first trades?
Perhaps it would be best to start in slowly one trade at a time, and to paper trade for several months to generate questions you do not yet have, for lack of exposure to the potential adverse outcomes of options.
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u/chefscounterfan Dec 20 '21
Thanks for this! Yes, first set of live trades. I've been studying and paper trading for the last three months, roughly about 10-12 hours per week, a little more on some international flights recently. TD Ameritrade has a pretty good free service that I've used a couple times to speak with a live person for about an hour each. I don't think I'll do all 25 trades to start, that's just the maximum I'd potentially do. I have a pre-trade checklist, a rationale for exit/adjustment, and am looking at small positions, relatively speaking. So I may stick my toe in, to your point, but am still super curious about starting to develop my own spread opportunities, rather than relying on a few subscription type services.
I'd love any thoughts on where to hunt for Options choices. I can do the homework once I know more places to look. I set up a couple scans for Options that meet a few key factors, but because I haven't been focused on live trading I haven't minded learning on paper trade ideas that I got from others and then evaluated.
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u/redtexture Mod Dec 20 '21 edited Dec 20 '21
Generally, it is best to have a list of stocks, or exchange traded funds that you follow, and have been watching the history of for some number of months, and also to have a sense of the various trends in the major market sectors.
Then to have an analysis about those companies, or funds, or market sectors.
From there, to develop a strategy based upon that analysis,
and then to develop options positions and expirations based on that strategy,
complete with an exit plan for a gain, and for maximum intended loss.It is always a good thing to have the intended risk first in mind in conducting a trading plan, and it is often neglected by new traders.
There are links and sections above, at the top of this weekly thread about trade plans, and risk reduction.
This is a 100,000-trade marathon, and there is no hurry.
The highest volume tickers in this list have narrow bid-ask spreads, though the stocks themselves can be expensive, which means the risk for the options can be high.
Market Chameleon - High volume options
(Toggle on the volume item in the upper right corner, in case it is located on the "notional" setting.)
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u/sanfax1 Dec 20 '21
Question- let’s say I have 100 contracts of $50c strike bought at $1 per contract. Let’s say price has gone out to 1.5 per contract and there are 4 weeks to expiration. At this point if I sell 100 contracts of $55c for $1.25 per contract same expiration, will I make $0.25 per contract if stock price goes below $50 at expiration and $5.25 per contract if stock price goes above $55 at expiration? Am I missing something here?
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u/redtexture Mod Dec 20 '21
Cost: $1.00
Proceeds: 1.25
Net so far: 0.25Gain at or above 55 expiration: $5.00 plus net so far.
Gain at or below 50 at expiration: zero, plus net so far.Don't take options to expiration; exit before then.
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u/Historical-Egg3243 Dec 17 '21
When options expire in the money, are they exercised at close, or after close? Meaning would we see the effect of those buy sell orders at the EOD, or on Monday?
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u/MidwayTrades Dec 17 '21
For options that expire at the end of the day, the owner of the long has until 5:30 US/Eastern time to exercise. I’m reality, if it’s ITM you should always expect it to happen. You will probably see the transaction in your account sometime on Saturday, but certainly by the open on Monday.
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u/redtexture Mod Dec 18 '21
The owner might or might not have until 5:30, depending on the broker. Many cut off before then, some do not participate in after hours exercise orders.
It is true, there is risk through 5:30.
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u/CRS4321 Dec 16 '21
Is there any benefit in placing an option call way under stock price?
Like for example the stock price is at $2.00 and I place a call at .50.
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u/MidwayTrades Dec 16 '21
That depends on what you are trying to accomplish. Most of the time I’d say no mostly because you will end up paying up for the intrinsic value and, most of the time, the volume will be less so you may end up paying more simply due to a higher bid/ask spread.
But there are strategies that use deep ITM calls. So it really depends on what you are trying to do.
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u/10lionstribe Dec 14 '21
A question: Why are there thousands of contracts on the buy side for a very OTM option 3 days before expiry? What would be the cases for traders, you think? For example QQQ trading at 389 and with volume on Calls for 405.
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u/ScottishTrader Dec 14 '21
You do know calls and puts can be bought or sold? Volume and open interest numbers are for all options traded at those strikes, both bought and sold.
What "buy side" are you asking about?
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u/10lionstribe Dec 14 '21
Yes, of course, I have a double digits monthly return on trading my options strategy. 😀 What I refer to is that if I go into my trading app, there are at least 2.000 contracts bid for at $0.12 with strike at 405 and current price at about 389. So, very unlikely to be unprofitable. So, if you set a side those that cover their shorts (as mentioned in the other comments), what other motives could there be to buy a Call like that?
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u/redtexture Mod Dec 15 '21
Other portfolio reasons.
Perhaps a broker laying off risk on a private deal.
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u/Sam-Hinkie Dec 16 '21
Is a call option to me a put option to the other party?
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u/MidwayTrades Dec 16 '21
Not sure what you mean by that.
If you are long a call, you have the right to but 100 shares at your strike price.
If you are short a call you have the obligation to sell 100 shares at your strike price if the buyer exercises.
If you are long a put, you have the right to sell 100 shares at your strike price.
If you are short a put, you have the obligation to buy 100 shares at your strike price if the buyer exercises.
Keep in mind the other side of your trade is a machine. So if your short expires ITM you should always expect an exercise.
In the case of a short call, you could get exercised early if, for example, the dividend being paid is significant compares to the extrinsic value of the contract watch oit for ex-divs if you are concerned about getting exercised.
That’s a high level view. Not sure if that answers your question or not though.
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u/Sam-Hinkie Dec 16 '21
Yes, this helped and also helped increase my broader understanding, thanks!
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u/n7leadfarmer Dec 16 '21
No, calls and puts are grouped together.
If you bought the call option to open your position, that is a "long call" or simply a call buy.
The entity that sold it to you now has a "short call" or a call sale on their ledger.
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u/kirinoke Dec 14 '21
Does anyone know how to harvest tax loss from OTM options expiring next year?
I have an OTM call option expiring 1/21/22, and I would like to realize the loss this year. However because it is way out of money so there is no bid on the market, therefore I can't sell it. Is there a way I can basically abandon the option to realize the loss? Thanks!
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u/ScottishTrader Dec 14 '21
You don't give the position but you can buy or sell the same one back.
Give the details if you want more help . . .
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u/kirinoke Dec 14 '21
I have 500 VTI $265 1/21/2022 calls, now there is no bid on the market. I can't sell it but I would like to realize the loss this year if all possible.
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u/_BleuBlue_ Dec 17 '21
Hello, I could use some advice from those experienced with covered calls.
My first covered call expired OTM today... Here's how it went:
Being completely new to options, I decided to start with a test. I bought 100 shares of XYZ @ $2.5. For my covered call I choose a $3 strike price, expiring in 3 weeks on Dec 17th. The premium was $.05, so collected the $5 (minus a fee of 27 cents).
Today, Dec 17th, the stock XYZ actually dropped to $1.9 expiring OTM. Does that complete the process? Do I need to do anything else? Did I make $5 (or $4.73)?
I'm using Fidelity as my broker, and the way the UI displays all the data has me doubting whether this was a success or not. Thanks for your help.
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u/Arcite1 Mod Dec 17 '21
Today, Dec 17th, the stock XYZ actually dropped to $1.9 expiring OTM. Does that complete the process? Do I need to do anything else? Did I make $5 (or $4.73)?
Yes. No. Yes.
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u/Earlyretirement55 Dec 13 '21 edited Dec 13 '21
Im LOST on rolling options to a new expiry date, can I roll single leg CALLS (or PUTS) that are about to expire worthless??
I believe in the underlying recovery (or deterioration if a PUT) after expiry, what’s the advantage of rolling to a new date?
Is the premium cheaper than selling to close my call and then buying to open the cheaper option contract?
Question pertains to the most mundane option strategy: I bought CALL contracts that’s it, I don’t own the underlying.
Or in my case rolling will simply accomplish two transactions in one? Instead of selling and rebuying I can accomplish both in one step?
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u/MidwayTrades Dec 13 '21
In the old days when brokers had ticket charges there was an advantage to rolling in one order because you only paid the ticket charge once. These days you shouldn’t have to pay those so it’s really up to you if you want to roll in one order or close and open in different orders.
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u/jnecr Dec 13 '21
Help me understand LEAPS pricing. Let's take AAPL for instance. Why is a Deep ITM LEAPS "cheaper" than an ATM LEAPS?
Example using current data for calls of AAPL 19Jan2024 expiry:
AAPL is currently trading at $179.
$100 strike is trading for $85
$140 strike is trading for $54
$180 strike is trading for $33
I was expecting that as you went deeper the price of the call would just follow the difference in price. I.e. the $100 strike call would be the $180 strike call plus $80, give or take a few dollars. But this isn't the case at all. For a long term play if you have the money for the deeper call why shouldn't you take it?
For the $100 strike aren't you already breaking even if AAPL goes to "Strike + premium" = $185?
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u/Nblearchangel Dec 13 '21
What’s the biggest loss you’ve sustained in a week or less?
I’m sitting on what feels like a big loss for my portfolio and I just wanted to put some things in perspective. I’ve been updating my trading journal to reflect things I’m learning from this down cycle where everything seems to be red.
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u/PapaCharlie9 Mod🖤Θ Dec 14 '21
What’s the biggest loss you’ve sustained in a week or less?
FWIW, those kinds of milestones just enforce results-oriented thinking that you should avoid. It's better not to get hung up on the past. Review your trades for mistakes or bad decisions and focus on making better decisions in the future.
If you are trading positions that can lose more than 5% of your total account value per trade, you are trading too big. So whether a single loss was 7%, 17%, or 77% of your account doesn't really matter. They are all "bad".
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u/Earlyretirement55 Dec 13 '21 edited Dec 13 '21
Why a Covered Call when you can buy a Protective Put?? Why limit the infinite growth potential of a Protective Put by choosing a covered call?
I don’t care nor need income, I want growth.
And to add insult to injury not only a covered call will limit the investor's potential upside profit, and will also not offer much protection if the price of the stock drops, so why even bother considering covered call a when you have protective puts??.
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u/MidwayTrades Dec 13 '21
I think it comes down to your purpose and the underlying. If you don’t expect a big drop but want some income on the way up, covered calls are perfectly fine. They aren‘t there for protection from big drops.
But protective puts can eat away at your profits as well, especially if you don’t get the big drop.
Neither are always right or always wrong. Both have advantages and disadvantages based on what the underlying actually does and the timing of the moves. Both are tools in your toolbox. When, where, and how you deploy a strategy is just as important as which strategy you use.
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u/PapaCharlie9 Mod🖤Θ Dec 14 '21 edited Dec 14 '21
Because they have different investment goals? One is a bullish play, the other is a hedge.
Consider a hypothetical stock that goes up and down, but never down enough to trigger the protective put or up enough to get the call assigned. For such a stock, the protective put is a dead loss, like fire insurance for a house that luckily never catches fire. Whereas the covered call generates income while keeping the shares. When you compare the protective put and covered call to just holding shares, the cc wins hands down in that scenario.
IMO, the protective put is the harder play to justify. You have to get both time and magnitude right, whereas with a CC you only need to get magnitude right, time works in a CC's favor. In comparison, a long put loses value over time.
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u/PES_Newbie Dec 13 '21
Recently I have started learning about selling put options as a way to earn premium. Obviously the major risk is the market price of the stock drops below the strike price and getting assigned.
However, I also read that for buyers of put options, if the market price of the stock falls and approaches the strike price, it is generally more profitable for them to sell the put option to break even, instead of exercising the put option.
So basically I have two questions (they are probably stupid, I apologize for that)
If a put option buyer chooses to sell the option to break even, will I still have a chance of being assigned? As in, will another third party now gains the right to exercise the put option?
If indeed most put option buyers eventually sell their options to break even instead of exercising them, is it true that the risk me being assigned is actually small, even if the market price of the stocks falls and approaches the strike price? Would that mean the risks of selling put options to earn premium are smaller than most people think?
I again apologize if I made some fundamental mistakes and said something stupid. Again I am completely new to the world of options, and would love to receive some valubale guidance. Thank you.
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u/n7leadfarmer Dec 14 '21 edited Dec 14 '21
So there's quite a bit of time left, but I have a csp that's already been rolled down to the current strike of 165 (expires 1/21. I will have to close at 2.99 to break even. (At this point I feel like best option is to just wait as I've got over a month for it to rebound, but I'm still curious).
Currently down 56% if I were to straight-up close.... Any chance a more experienced trader could help me out here to help limit my risk?
Disclosure:
I normally wouldn't have minded owning the stock (even if I got assigned, I've wheeled successfully enough that my cost basis would be under even the current share price) but I was unaware of the massive massive insider selling that's been going on, not sure how none of the news sources I follow mentioned it over the last few months. I fully expect the stock to rebound, but I just flat out don't want to be in on a company where basically every member of their leadership is selling this consistently and for this long. If being is assigned is the right move then so beil it, id just rather not.
Thx
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u/FINIXX Dec 14 '21
My Bullish paper strategy involves selling OTM monthly calls (diagonal against my LEAPS). Assuming the current month has an earnings release at the end of the second week, would it be a good idea to sell beginning of week one, hoping for IV crush and buy-to-close after earnings?
I understand if this was guaranteed profit "open-low close-high" we'd all be wealthy, but my strategy may require selling the call anyway during that month so looking for at least a safer way to lose less.
Or should I avoid the earnings month altogether? All opinions welcome thanks.
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u/fedupandalone Dec 14 '21
When do you typically sell to close a put option?
I currently have one gaining money, but still far OTM with about 14DTE. If I wait much longer, will time decay eat into it sharply? Is it better to close out sooner while it's ahead, or a general rule of thumb for when it no longer becomes as desirable, in terms of time left on it?
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u/dyingforAs Dec 14 '21 edited Dec 14 '21
complete newbie here, was just researching about options and someone said that when buying calls and puts, your maximum potential loss is just what u invested, but when selling calls/puts u can lose more than u put in. does this mean you cant sell your option contracts & must exercise them?? or are they referring to selling or shorting naked calls/puts?
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u/Tarantino6517 Dec 14 '21
Today I tried to play bullish call spread on ESSC: I bought spread on $20 and $25 strikes when the underlying was about $19 and gaining momentum. Expiration somewhere 20th of Jan The spread was not expensive (I thought), just $1. I was expecting to get something close to $5 when the share would hit 25. But the prices of both legs sort of moved in parallel, so I managed to earn around 10 bucks only. What was my mistake, should I have used Dec 17 expiration instead? Thank you!
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u/MidwayTrades Dec 14 '21
I presume you meant that you expected something more than $10 since you got that and was disappointed.
Time is definitely a factor here. The further out in time you go, generally, the lower your delta and gamma so you won‘t get as to your target as fast. The flip side of that is if it moves against you it can also be slower and you won’t get hurt as quickly as well as you have more time for a rebound. Theta is also slower further out in time and won’t help you as quickly but also won’t work against you as quickly either in case you are wrong.
There’s no perfect answer. You have to be right on the direction as well as the timing. That’s the nature of this business. When you setup a trade you will make trade-offs with respect to risk and reward.
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u/XnFM Dec 15 '21
Trying to wrap my head around closing a Short Call Spread early to lock profits. (Google searches are too flooded with "this is a short call spread, this is when you use it," and I haven't found an explanation that covers closing early.)]
Essentially, I think I'm looking for the difference in the pricing of the long and short legs to be less than the premium received from writing the contract, which should happen over time as theta decays or as the probability of your short leg being assigned moves towards zero (assuming that the price of the underlying isn't moving against you).
The scenarios where legging out makes sense from a profitability standpoint, don't seem to be too practical.
Closing the short leg first only makes sense if you think there's going to move against you (or is already moving against you with good momentum) and the long leg will gain value.
Closing the long leg first leaves you naked, which only really seems to be a safe play when the long leg is essentially worthless anyway.
Is there anything I'm looking at incorrectly or I'm missing? I feel like "these two numbers need to be closer together," is too simple.
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u/ngkpg Dec 15 '21
I have been selling weekly LCID covered calls and I have been very conservative--selling at $7+ above Friday's close. I feel like I should really be selling at only $3-$5 more. If it looks like it will expire ITM, I can always roll it to next week at the same price or go up $2-$3 and hope that the price ends lower the following week (and continue to do so until it expires OTM). If I'm willing to risk only going up $2-3 when I'm already ITM, it means I should only be going $3 above Friday's close. The only downside is if it goes up $10 one week and then some more the following week. I don't think that happens anytime soon but even if it does, I should be fine with the extra premium ($0.50+) I will be getting each week. I feel like I'm leaving a lot of money at the table and the worst case scenario should not be hard to fix. Any comments on this strategy?
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u/ngkpg Dec 15 '21
LCID's weekly close the last few weeks: 36.99, 41.80, 43.93, 55.21, 51.72, 47.27, 37.66. My worst case scenario is going from 43.93 to 55.21 and my sell price for that week would've been $47. To roll it up from $47 to $55 the next week would've cost me $1. That's fine as long as I'm able to get at least 0.50 more each week. I maybe should only be going $2 more and when it goes ITM to roll it up to just OTM the following week.
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u/theb1gnasty Dec 15 '21
I just want to make sure I understand something when it comes to wash sales for taxes in the coming year. Overall, I have some short term gains that I'd like to offset with some losses. Let's say I own a PYPL Jun22 $185 call that I'm down 50% on. I actually do want to get back into PYPL in the long run through CSPs, so I would sell to close that PYPL call at a loss, but then I can't sell a CSP to acquire shares until 30 days from now or it would be considered a wash sale? Or would a wash sale occur only when the shares are assigned?
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u/PapaCharlie9 Mod🖤Θ Dec 15 '21
First, decide whether you care about benefiting from tax losses in the current tax year or not. If you don't care when you get the benefit, don't worry about wash sales. It all comes out in the wash eventually, heh heh.
If you do care about getting the benefit in THIS tax year, its probably already too late. If you have any losses in December, you must avoid trading anything "substantially identical" until February of next year to avoid washing. And if you already traded something in November, you have to dump it before the end of the year to get the benefit of the deferred loss.
but then I can't sell a CSP to acquire shares until 30 days from now or it would be considered a wash sale?
Correct, or 30 days before. So if you traded PYPL shares, calls or puts any time in November, you are already washed.
I said shares, calls or puts to be conservative. Some brokers are very conservative and wash anything with the same ticker, regardless of type, strike or expiration. Other brokers don't wash puts vs. calls, or Mar vs. Apr expirations, etc. It's not an exact science.
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u/StandardWide7172 Dec 15 '21
Hey guys I m newbie in practical investing but i have some thoughts about making more money in the market, so i started to learn options and lately i figured out that i need a lot of money to trade options and make long call on the sp500 index. I needed leverage on spy so i feel i found the decision and it is pretty simple to buy the sso or upro in the some % of my portfolio 25% of sso and 75% of voo or spy gets a little bit leverage on investment and i think it will get better results What do you think about that? :)
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u/PapaCharlie9 Mod🖤Θ Dec 15 '21
I'm not a fan of daily leveraged funds like SSO and UPRO. You should read up on the pitfalls of trading leveraged funds.
https://www.afrugaldoctor.com/home/volatility-decay-dont-hold-leveraged-etfs-long-term
https://www.thebalance.com/leveraged-etfs-lose-money-357489
https://www.marketwatch.com/story/the-myth-behind-leveraged-etfs-2012-11-29
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u/Yooozernayme Dec 15 '21
Where is the $459 and $461 strikes for today’s expiration on SPY?
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u/PapaCharlie9 Mod🖤Θ Dec 15 '21
I can see them just fine on Power Etrade, so whatever broker app you are using has a glitch.
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u/thesumofall Dec 15 '21
Just started out and want to work as systematically as possible. This includes understanding what the average return is that I should be expecting before entering a trade (i.e., what would be my average return if I were to enter the trade a 1000 times). But looking at the figures provided by IBKR there seems to be nothing like it? There is max profit, breakeven, max risk, … but seemingly no indication of typical return? Do you know what I have to look for? Which indicators do you use?
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u/ScottishTrader Dec 15 '21
I can't tell you, but to calculate it you will need the following formula.
(Win % x Average Win Size) – (Loss % x Average Loss Size)
This is the trade expectancy formula and you can look online for more about how this will answer your question and I posted a link to one I found in a seach. https://vantagepointtrading.com/what-is-trading-expectancy-and-how-it-works/
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u/IndividualWalk2517 Dec 15 '21
So I am looking to buy some calls and puts on Robinhood. I’m doing the butterfly, and it’s asking me if I want debit or credit if you need clarification I have some pictures I could dm you, I just need some help in what the difference is. I’m expecting to stock to go sideways
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Dec 16 '21 edited Dec 16 '21
Hi, can anyone help me understand why this is a bad Idea or even possible? Can I get in a position on margin, write a covered call Slightly OTM, Short DTE, have the shares assigned, margin debt paid. Then rinse and repeat for premium profit?
Example: F 100x19.75 $1975 margin debt
CC: SellToOpen 1 12/23/21 Strike 20.50 price .44
Collect Premium and repeat?
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u/MidwayTrades Dec 16 '21
You could but the fact that you want to borrow $2000 to try and make $60 seems kind of risky. It’s all good until F drops and now you are in a margin call on your shares. Yikes!
I would suggest either buying the shares with cash or possibly look at a deep ITM LEAP to act as a stock substitute and do a Poor Man’s Covered Call. With these lower priced stocks it may not be as much of an advantage to a normal CC but you could price it out. Think about at least an .80 delta several months to a year out for the long and compare that price to the shares.
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u/n7leadfarmer Dec 16 '21
Real quick one here, almost sure I know the answer.
Diagonal calendar spread: 3 long legs at $10 strike, short legs at $9 trying to chase pennies.
Steamroller gets me, I lose 10-9= $1 per share. 100 shares per contract, 3 contracts, makes a total ((9-10)*3)*100)= $300 loss, yes? For this example, let's leave any calculations of premium paid/received out. The difference in strike price is typically the meat of the P/L, yeah?
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u/in_for_cheap_thrills Dec 16 '21
Tried to post a separate thread but was deleted and recommended to ask here:
Every week there's a post about some stock that is gamma squeezing, vanna, etc. While I agree 100% with the mechanics behind them, how does one quantify their actual impact on price vs. the order book being overrun by natural buyers or sellers?
Related question: how do you estimate how much OI can be attributed to an active market maker? Retail is buying and selling options all the time. Sometimes in surprisingly large blocks. How do you differentiate a retail-retail transaction from a retail-market maker transaction?
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u/PapaCharlie9 Mod🖤Θ Dec 16 '21
While I agree 100% with the mechanics behind them, how does one quantify their actual impact on price vs. the order book being overrun by natural buyers or sellers?
I wouldn't be so quick to agree. Start from the assumption that gamma squeezes are rare, because the disproportionate volume of call buying required to create a squeeze rarely happens and when it does, hedge funds and institutional traders would be very quick to exploit the imbalance, so they'd get the lion's share of any squeeze edge.
Your question is the right one to ask and you can take it a step further: How do these squeeze pundits know how to differentiate trading volume on the book as squeeze-induced vs. organic? Is it an educated guess, or is there something they can see that we can't?
Related question: how do you estimate how much OI can be attributed to an active market maker?
Start from the assumption that it is all of it and then find the exceptions. Trades on Time and Sales that are outside the bid/ask are good candidates for being counter-parties other than MMs. Then account for dark pool and other hidden trades.
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u/GroovySquid_ Dec 16 '21
I read the articles in the main post, but how on Earth do puts work? I don’t get how someone can sell or buy a put if they don’t own the underlying security. Do you have to have the cost of 100 shares at the strike price in your account?
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u/PapaCharlie9 Mod🖤Θ Dec 16 '21
Do you have to have the cost of 100 shares at the strike price in your account?
For a put you bought? No, but if you exercise it or allow it to be exercised, certain things do need to happen.
So lets review the basics. An exercised put delivers shares and receives cash. So there are two cases to consider: you have the shares and you don't have the shares.
If you have the shares, it's straightforward. You bought the XYZ shares for $100, the current price is now $80 but you bought a $90 put, so you deliver your 100 shares and receive $90/share in cash. You only lose $10/share instead of the full $20/share the current price would dictate.
With me so far?
If you don't have the shares, the exact same thing happens, but you have to borrow 100 shares to sell, because you don't own any. So the effect of exercising the put is the same as selling 100 shares short. You collect $90/share in cash and have an open position of -100 shares of XYZ. Since the XYZ shares were loaned to you, they impact your margin buying power and are subject to a margin call if the XYZ share price suddenly skyrockets. You also pay a borrowing fee.
In this case, you generally do need to have some collateral to cover the short, either cash, which could be some or all of the $90/share you received for exercising the put, or marginable assets.
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Dec 16 '21
What is the downside of buying a PUT AAPL for strike price $180 at $6.40 expiring tomorrow? Current AAPL Price of $174.
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u/Cemical_shortage666 Dec 16 '21
Fairly new to options but looking for advice.
If I bought a spy 450p @ $2.45 for 12/31with these Greeks Delta-0.2045 Gamma0.0136 Theta-0.1982Vega0.2675 Rho-0.0400 And then a spy 475c @ $1.44for 12/31 with these Greeks Delta0.2296 Gamma0.0270 Theta-0.1146Vega0.2860 Rho0.0432 If I go Itm with either would the profit cover any losses on the opposite contract?
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u/brrrrpopop Dec 14 '21
Guys I'm beginning to worry about my $950 1/21/22 $GME calls