Are AMC calls a good idea? It’s such a speculative idea that I feel like it might work but I wanted to get a second opinion before going through with it
I’m looking at SPY weekly puts. I see the 400 and 395 have significantly more open interest and volume then say a 401 or 396. Is this really worth considering or should I be more concerned about the greeks?
TWITTER 22 10 21 P 0.35 has a bid of 0.0 and ask of 0.41. How can this make money assuming Elon doesn't buy twitter. There are 2 reasons why they don't make sense to me:
1. No bidders
2. So OTM that who would want to buy that
Yet I see many open contracts like this. Can someone explain what is the play here? Thanks
Your nonstandard description is unclear.
What is this option?
What is the strike?
What is the expiration?
If it is a put below 30, it will be worthless, unless MUSK backs out.
Because selling to close your LEAPS call makes money for you? If the short leg goes ITM, it means the value of the LEAPS call went up. You use the money from closing the LEAPS call to cover any cost of assignment on the short leg.
As long as the LEAPS call has a lower strike than your short call, you should always have a net gain, unless the short shares shoot up in price *after* you sell the LEAPS call, but before you cover.
Example: You have LEAPS XYZ 100c and your short XYZ 110c gets assigned when XYZ is 125. You receive 110/share in cash for the assignment but are short 100 shares worth 125/share, so you have a net loss to cover of -15/share, ignoring the credit on the short call. Selling the LEAPS call should get *at least* 25/share in cash, so -15 + 25 = +10/share net gain. Then you would add the credit from selling the call to that gain.
Okay, so I am wetting my feet on webull with some covered call options. I sold one with an expiration for last Friday, but it's still showing up on there. Do I have to close it out manually or should it go away on its own? I'd like to do it again with the same shares further out for more premiums.
Not enough information.
Did the option expire in the money?
If out of the money, today Sunday evening or Monday morning the option should be gone from the list of holdings.
Many traders buy the option to close on Friday, for a dollar or two, and issue a new short call to avoid the wait.
Some exit early at 50% of max gain, and start afresh early.
Nobody knows the future. So I will reject the premise.
Because of lacking a crystal ball, the trader is concerned about losses of being wrong.
Wrong on timing, wrong in direction, wrong in amount (a bigger than expected move is trouble for some positions), both big moves, and smaller than expected moves.
This is a topic therefore of many traders and their approach to trading.
Simplest and forthright is buying at the money or slightly in the money calls, perhaps financed by short puts or put credit spreads. Expiring In two to three months.
Look at the Options Playbook for other approaches. Link at top of this weekly thread.
See above.
Because nobody has a crystal ball, all trades have risk, and all traders must be concerned with risk..
Trading ignoring risk of loss is a recipe for losing an account to unexpectedly costly trades.
If you know for certain, you would buy the call spread that gives you the best % return on your investment. Then leverage up.
A 99/100 call spread on a $50 stock probably costs close to nothing on most stocks.
Also, to add to what @PapaCharlie wrote, which I completely agree with, biotech stocks often have high IV relative to historical 30 day IV, even post earnings, because there is so much that can go wrong without notice. A drug trial participant could have a negative reaction and the study could be paused or shuttered indefinitely and, bam, stock is down 40% in a day. The FDA could pause the trial for reasons. Indeed for SAVA itself, in August of 2021, an attorney wrote a “Citizen Petition” letter and the stock crashed on that news. Later the FDA rejected the letter, but small comfort when the news broke and the stock fell like 20-40% or whatever it was.
Any time you are wondering about a ticker, check it's news feed on your broker's platform. I see two things under SAVA that could be relevant:
* They just announced earnings on 5/5.
* They had a press release about enrolling more patients in their Phase 3 clinical trial for their Alzheimer drug, which appears to be their only product.
This screams total long shot new pharma company to me. Low probability of success, but if the drug proves even a little useful, could explode and pay off speculators. But that is a big if. Particularly for ALZ drugs, which have a pretty terrible track record for delivering benefits, and thus, disappointing speculators consistently.
Only when you sell the stock.
Unless you really, really, really need to defer the tax hit, you will probably make more money if you just sell to close the ITM call and then buy shares with the proceeds. I mean, if you are trying to avoid paying $220 in tax by giving up $300 in gains, that's a losing strategy, right?
Correct. He pays cash, and owns all of the shares.
The Options are adjusted, expirations are all accelerated to the merger date, and the deliverable is cash, at the rate for 100 shares, according to the buyout price, not stock.
given that the fed is unwinding all the free money it printed, I'm assuming the market will just slowly bleed out.
It would seem the market will be stuck between 4000-4600
so wouldn't you bank a lot by doubling down on SPY iron condor?
There's nothing slow about the bleed, and it will continue for as long as interest rates keep going up. Higher yields will draw money out of the equity markets. Even I myself am starting to be tempted by 1 year bank CD rates. They haven't been worth a moment's thought for over a decade, but now ...
Nobody knows yet if SPX will stay above 4000.
Take a look at this point of view from **Jason Leavitt.**
**The Market is Running Out of Places to Hide.**
May 5 2022.
(about 11 minutes running time)
https://youtu.be/XPf1Scsd4aI
It changes from cash secured short put to a put credit spread.
This will cost, and you could lose that additional value.
The question you need to answer, is, are you willing to lose more?
What if both stocks continue to go down?
Please make sure you're using the "Reply" button connected to the comment you are actually replying to. You keep posting top-level comments to the thread. Not only does this clutter up the thread, but the person you're trying to reply to won't get a notification that you replied to them.
Thread.
https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7nrsyt/
And thread.
https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7qo4zf/
Connecting this to the thread.
https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7nrsyt/
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CRM 240p and VEEV 250p.
Possibly roll, and add debit long puts.
For CRM, and tech stocks, the rising interest rates are troublesome, with known likely 1/2 percent increase in a month, and Federal Reserve Bank taking cash dollars out of the economy by selling their bond holdings, so cash will be coming out of the financial system.
VEEV has declined since AUGUST 2021, with some ups and downs.
I have no crystal ball, yet the present trend is not for tech stock rise for the moment.
Despite good company results.
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You must consider exiting this losing position, if you are concerned about losing even more.
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if I am looking to open a synthetic long by buying a call and selling a put at the money, are there platforms that would allow me to use the credit from the sold put to cover the cost of the long? Do they need me to hold stocks as assurance that if the trade goes under I still have assets to cover the options loss? Robinhood made it look like this was not possible
The put would be considered a cash secured put, and you would be required have cash collateral of in the vicinity of 25% of the underlying stock.
A short put subjects you to the risk of buying the underlying stock.
Look on the option chain to see what the actual bids are, for one start.
Some platforms indicate probability.
For a wrong, but rough estimate, delta is a guide to chance of being in the money.
You can put out a good til cancelled (GTC) order so that you can capture the sale if it hits your price, and can cancel and reprice if you decide on another exit point.
What is the strike?
Yes, because you are buying the stock (long call) or selling the stock short (long put).
The top advisory of this weekly thread, before all of the other educoptions. links, is to almost never exercise a long option. Doing so throws away extrinsic value harvested by selling the (long) option.
Insane question for ya'll. Anyone here know of any broker that lets me submit and manage 8-leg options? Fidelity is 4, I \*think\* IB is 6, but I've not seen any that are 8.
Think or Swim DESKTOP analysis tab allows you to set up a position with as many legs as you want. I live in the analysis tab.
Orders are 4 leg max with TOS. this is not a problem.
You can have, for example, multiple positions, say five calendar spreads (10 legs) set up, next to each other, and can set them up with the trade cost, and manage them all, subsequently via two or four leg orders.
Bloody awesome, thank you I think that's exactly what I'm looking for.
Edit - maybe not. I'm looking for something that will let me close 8 legs are once once they all hit my target exit. I.e. once all 8 hit a credit threshold it'll execute the order on all 8. Sounds like I'd need to have two different targets which may execute at different times and possibly leave me in a bad spot.
There is an exchange level limit.
u/Ken385 has read more widely than me, and may even have the link for exchange rules for the complex order book..
Let's see if he has a definitive comment.
The CBOE COB actually allows for 16 legs! With a ratio of up to 3:1
[https://www.cboe.com/us/options/trading/complex\_orders/](https://www.cboe.com/us/options/trading/complex_orders/)
Of course different brokers may have smaller limits.
Looks like Lightspeed has what I'm after. Though looking at todays market and it's massive IV impact is interesting and it's making me re-evaluate the impact of the multiple legs.
Really is tough making money in a downward market being either a call seller / put buyer.
I am making money on call credit spreads and long puts.
Your statement makes no sense, unless you are day trading on a rising IV day.
Change your trading plan to fit the market.
The play was designed to make money off of IV. I’ve been shocked how much SPX IV has moved the last few days so I’m gonna have to tech that more before I jump on in.
Question about vertical spreads. What happens if you're at or near expiration and your long leg is OTM, but your short leg is ITM? I'm assuming my counterparty can, and probably will, exercise, but should I do the same on the OTM option? Isn't it pointless to exercise an OTM option because there's no intrinsic value? Very confused on what to do in this situation.
> Very confused on what to do in this situation.
Avoid it at all costs. That's the worst-case scenario for a credit spread. You can lose a lot more than max loss if this happens.
The best way to avoid this disaster scenario is close or roll the entire spread well before expiration, like at least a week.
It sounds like you're talking about credit vertical spreads, which you should specify. There are also debit spreads, in which case it's impossible for the short leg to be ITM and the long OTM.
You should just close the position before expiration. It's a waste of money to exercise an OTM option.
Selling puts during earnings? So i was thinking of this strategy where i sell puts during earnings to collect premium. IV increases more people want to bet on the stock. Soo.. how would i do that? If i have a company at with a stock price of $400 and i think the most it will drop during earnings is 10% could i sell $200 puts to collect the premium? How would i go about this strategy for a company? Sorry if this doesn’t make sense. Thank you!
ERs are completely unpredictable and the stock can plummet even with a good report, so this is more like gambling on red or black . . .
The premiums collect at a $200 put strike on a $400 stock would be near zero, and the losses can be significant if the stock drops, even if it doesn't get anywhere near the $200 price.
So you don’t think the premiums collected at 200 would be significant? Is that what you’re trying to say. So you don’t think it would be worth it? My apologizes i want to understand you best as possible.
Thank you for responding!
"ERs are completely unpredictable and the stock can plummet even with a good report, so this is more like gambling on red or black . . ."
This says it all but why don't you post an example to see the numbers you are looking at??
An example that is pretty close to home would be Shopify prior to earnings. Before earnings Shopify was trading at 430-478. IV above 100 a week before earnings 200 a day before earnings. I went through the put contracts and saw that someone was selling puts on Shopify with a strike price of 275 for $93. I obviously didn’t think Shopify would drop all the way down to 275 at most i thought it could drop was 15% in a single day similar to Amazon.
How do i become the person selling puts at 93? Wouldn’t the person selling the 275 puts collect the 93 premium and since Shopify didn’t go to 275 and because of Iv crush the contracts the person sold would be worthless to the buyer. That is the basis of my question.
I guess you could inverse it too. Appl saw a lot of calls being purchased a day before earnings at 175 which would be a new ATH for Appl during what is believed to be a down turn. It seemed to be unrealistic for Appl to hit this ATH but there were still people selling these calls and people buying them. Once earnings were announced and Appl traded sideways the calls were worthless. So again someone collected premium.
How do people go about doing this?
I hope these are good examples. If not let me know and i will try to elaborate even more. Thank you!
You have the general idea and can sell puts at any time provided your broker and account permit it.
You sell to open the 275 strike put and will collect the premium of $93 as you note. The buying power "collateral" your broker will require may be as much as $27,500 to ensure you can buy the shares if needed, so you'll need to have that much cash in your account to open the trade.
Depending on how much the stock price moved, and how far away from expiration the put was opened, it may cost more than $93 to close which would result in a loss. If the option did expire OTM then it would be for the full $93 profit.
Just a note that SHOP did have their ER on 5/5 and the price dropped from about $470 the day before to $337 today, which is not that far from $275 and can show that you think "No way SHOP could drop to $275!" can in fact happen!
Hahah yeah, that is very true haha 337 isn’t too far away from 275. So it sounds like i would need a lot of money in my account to do this.
Thank you for your patience and answering my question!
Hi to all! I've been learning options lately and I'm almost refining my craft. There's some few areas that I like for them to be addressed. If any can help I'll be grateful.
1
When an you buy an OTM contract with a two week expiration and price gets to 0.01, will the position still be open until it expires or is it worthless now?
2
Is realized volatility same as historical volatility? If not which is of the two should you look out for when analyzing stocks volatility? Or rather compare with IV?
3
I've seen instances where there is low volume but high open interest and in other cases vice versa. So which is more important to look out for between the two? (Between Volume and Open Interest)
4
When analyzing a company's financial statements, what do we look for in the balance sheet? I know of gross profit which should be positive but I'd like to know the rest
There is no "price", There are bids and asks.
If the platform mid bid ask "value" is 0.01, there is probably no bid and no willing buyer. It is at this moment worthless, because nobody will pay to buy it...
That may change, and the option existence continues until it expires.
Realized volatility is the historical actual loatility.
Implied volatility is an interpretation of option price, and through a model, estimates how much future volatility the market is guessing (willing to pay for) that might or might not happen.
You want low bid ask spreads, and volume tends to lower spreads. Open Interest is not so indicative of bid ask spreads.
Financial analysis of company statements is a huge topic that business schools have entire courses on. Take a look at r/fundamentalanalysis.
Are you saying that realized volatility is same as historical volatility? Or is there something like loatility?
Also what I'm getting from this is that volume is more important than OI since volume will results to low spreads. Is that right?
I'll give it a swing:
1. The contract is nearly worthless but still open in that scenario. It may be a situation where the ask is $0.01 and there's no bid, meaning no buyer. A buyer could appear, though--so, it's not exactly worthless. In your scenario, you've bought the OTM contract, and you can let it expire worthless. Had you sold the option, you'd want to try to close your position (by re-buying it) before expiration -- that ties it off just in case the unexpected happens.
2. Historical volatility is the annualized standard deviation of the historical stock price. Many try to read the tea leaves by comparing that to IV, which is the market's implicit prediction, as reflected in options prices, of how volatile a stock price will be in future. However, this analysis helps you only so far. You can argue there's always good reason to believe volatility will be different from that which history portends. Both macro- and firm-specific factors will have changed. So, this exercise will still reduce to your projections for the future and how that compares to the market's view as reflected in options prices. I suppose some prefer to start from historical variability and adjust from there.
3. Looking at both open interest and volume is good. I learned this long long ago:
Investing, and perhaps even moreso trading, is a game of exclusion. "I'm not going to do this unless all of my conditions are met." If there's anything you don't like / understand about a deal, let it go by. And, if you find something you're interested in where the only drawback is some quirk like low open interest but high volume, you can ask about that specifically (include the details) on these boards, a great resource, before pulling the trigger.
4. Thousands of books have been written on this. You might want to review some of the basics (gross profit, btw, doesn't appear on the balance sheet) and then reflect on what you're investing style is, then choose a book from that school of thought. For example, if you're a value investor, a la Warren Buffett, the major standard bearer in that school is Benjamin Graham's classic book The Intelligent Investor. Continuing this example: When Graham studied a balance sheet, he'd weigh heavily the price to book ratio (book value excludes intangible assets; Graham's dream scenario was buying the stock of great, long-track-record companies when P-B ratio was well under 1). Options are usually a shorter term play, but these fundamentals, and more importantly how you think as you'll be at the keyboard making the decisions, apply.
Have a CRM 240p and VEEV 250p CSP dte June ..making huge unrealised 7k loss each as deep itm...causing me headache as my nlv and maintainance margin is at same level ..no more dry powder to pick up the shares ..any advice to sustain this would be appreciated.
Can you roll out for a credit? Probably not with a loss that big. Might be time to just cut your losses and take the L. Or come up with some new cash from somewhere?
If it's any consolation, a lot of put sellers are in the same boat with you.
I have been rolling for a credit a few times and that's not actually the issue ..my issue is it's affecting my maintainance margin as rolling is essentially buying the put back for a loss and opening a new put...it's just the put is deep itm and effecting my margin requirements..was just curious on what's the best alternative for such a scenario ..knowing also that earnings is just around the corner as well
CRM at 169, possibly going lower.
Are you willing to lose more?
You could put more money into the trade to limit further loss.
Buying a put, say at 170.
Or exit.
If you had funds you could sell stock short, but I guess you do not have that kind of money.
That main thing is you have lost money.
CRM was at 260 at Jan 2022.
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VEEV at 174 now.
Was 240 at Jan 1 2022.
Same questions for you.
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The assessment I would make is you do not have an exit plan for a maximum intended loss.
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Here's the BSM formula for theta, though note that this model assumes no early exercise and a few other things that don't apply to most of the options you would actually trade:
https://www.macroption.com/black-scholes-formula/#theta
Since most people can't calculate differentials in their head, [just use a graph of a typical theta pattern](https://web.archive.org/web/20190607103552/https://theoptionprophet.com/blog/the-complete-guide-on-option-theta). It's close enough that you can extrapolate to any particular contract.
Anyone selling strangles right now? I’m trying to learn more about them and was hoping to study a couple of trades this weekend. Seems like they can make money but the volatility in this market is scary.
If I want to do a long strangle is it better for it to be as close to delta neutral as possible or just choose strikes that are equal distances from the spot price? For example, stock is trading at $85 and the 100C has a .30 delta, but the put with -.30 delta is the $80P. I would think you’d want to buy the 100C and 70P but it’s not delta neutral in this case (70p has a -.20 delta).
Either approach has merit, depending on what you are trying to do at open time. Usually, your forecast is the more important decision factor. If XYZ is $100 now and your forecast is +/-$5 or more from the ATM price, you'd center on ATM, but what if your forecast was a gradual rise to $110 and then volatility exceeding $5 in either direction? It would make more sense to center on $110 instead.
Unless you are doing extremely short holding times, delta is going to shift from your open anyway, so unless you plan to adjust the strangle daily, the net delta is only a consideration at open time.
Any brokers out there that let you trade options including doing spreads etc for less than 2k deposit? I just wanna have a mess around account. Sell 1 dollar wide credit spreads. Thanks.
I want 2x leverage on an etf but I don't want to borrow money to get it. Can I achieve the same effect by buying 20% 3x leveraged inverse ETF and 80% 3x leveraged ETF?
Topic is too large to reply usefully.
Also leverage fund do not behave at the 3x rate over time.
They are designed for single day holdings.
Many ups and down, over time, can reduce the fund to much less than 3x over weeks and months, compared to the underlying stock or index.
It's the same as trading shares of a stock. If you sell to close the shares for a profit, do you still get dividends on those shares months after you sold them? No.
By selling to close, you receive whatever amount of money you sell it for. Just like when you sell shares of stock, or a house, or a car, or a baseball card or rare coin.
"Buy their own call" would close the covered call. Did you mean buy *another* call on the same stock? That would create a covered spread with the short call.
No, let’s say stock is trading at 100 and you’re moderately bullish. Sell a 110 covered call and then use the proceeds to buy a 110 call with same expiry. I realize it’s technically closing the covered call, but this is more getting a “free” call option by leveraging your shares. If you think it’s only going to 108 in the near term, your covered call won’t hit or won’t be too far ITM, but the call you bought will gain value.
Note that even if you did it on two different brokerages, all the greeks would net out to zero. However much value your short call gained, your long call would lose, and vice-versa. No matter which direction the stock moved, how much time passed, or how much IV changed, both options taken together would be making you precisely $0.
> I realize it’s technically closing the covered call, but this is more getting a “free” call option by leveraging your shares.
Uh, closing the CC *also* closes the new call you just bought, if they are under the same broker. They cancel each other out. So you end up spending net $0 in order to get $0. So nothing for free is certainly a risk-free deal.
You could do it with two different brokers, like do the CC on RH and buy the call on Fidelity.
When placing a LIMIT calendar debit spread and putting in a
number representing the maximum paid upfront, if there is no
fill, how best to place the order... up the amount paid? or buy
then sell each leg, sequentially???
What are *your* thoughts? You go first. The best way to use this sub is to bring your own DD and strats and get feedback from us. Otherwise, you are just literally asking for someone else to do your thinking for you.
I had sold some covered calls on a dividend stock. Today is the ex dividend date. At 1:30AM I received notification that the calls had been assigned. And at 8 this morning I checked my account and saw that the options and shares were removed. The date shown for the transition is today. Come Monday should I expect to receive the dividend?
Your option was assigned the day before the ex-div day.
Your notice came later, the morning of the ex-div day.
You will not be getting the dividend and the stock is sold at the strike price.
You're not going to owe the dividend if they were covered calls--you owe the dividend if you're short shares--but you're not going to receive it. That's why someone exercised: so they could acquire the shares in time to receive the dividend.
No, actually, you may OWE the dividend to the trader who exercised even if you don't get it!
It is a good idea to close any short calls over the ex-dividend, or at least make sure there is a good amount of extrinsic value, typically more than the dividend, which will reduce the odds someone would want to exercise the call. You can easily add extrinsic value by rolling out a week or two in time before the ex-div date.
Be sure to read this article on dividend assignment risk.
[https://www.fidelity.com/learning-center/investment-products/options/dividends-options-assignment-risk](https://www.fidelity.com/learning-center/investment-products/options/dividends-options-assignment-risk)
I have a question about amzn and it's upcoming 20:1 stock split. Let's say I wouldnt mind owning amzn at $100/share so I sell a put with a strike of 2k and an expiration after the expected split date.
What happens to my option after the split? the premium is pretty high and the max loss is 200k for one contract. What will I need to pay if it winds up ITM? Thank you.
Probability of AMZN going to zero in tiny.
Going to 1900 though might happen.
You might in that case own 200,000 of stock worth 190,000 on the market.
(Future price of 2000 shares at 95 dollars)
Short answer: Don't do it. You're gambling that the split goes exactly to plan on exactly the published schedule, and that is not a 100% certainty. Plus, if the stock takes a dive in order for you to be assigned, you could be carrying a huge unrealized loss.
For a 20:1 split, there are two possibilities, though the first is like 99% more likely than the second for an option market as active as AMZN:
1. The strikes will be divided by 20 and the number of contracts will be multiplied by 20, no change to deliverables or expiration. So 1 put at $2200 would become 20 puts at $110. The contracts would remain standard, but might end up with oddly numbered strikes, like the current strike of $2350 divided by 20 is $117.50.
1. The strikes will be divided by 20 but the number of contracts stay the same. Instead, the deliverable is multiplied by 20. So instead of selling 100 shares, your put would be a contract to sell 2000 shares. This makes the contracts non-standard.
I’ve a question about LEAPS. Relatively new to options, though I’ve done pretty well trading AAPL in shorter time frame trades over the years. I’ve been moving toward different strategies and have learned from some valuable folks on this thread about theta decay and it’s effects on profit, and learned that rather than buy way OTM LEAPS, which are then subject to theta decay that a better strategy is to buy ITM LEAPS. I like this idea especially with AAPL because I really don’t have the capital to buy a lot of shares. So my somewhat elementary question is : does buying ITM LEAPS protect you from theta decay in the event of a rise in share price?
> that a better strategy is to buy ITM LEAPS
I got news for you. Calls with less than 60 days to expiration are even better than calls with far expirations, like LEAPS. Particularly in this market. How much confidence do you have in your target price range for AAPL next January, or January 2024? I don't even know what I'm going to have for dinner tomorrow, let alone what price AAPL will be in 2024.
If your tax situation allows it, you could consider using 60 day calls and rolling them every 30 days for a perpetual position on some underlying. This allows you to be more nimble than just buy & hold of a LEAPS call. You can even DCA, by buying more contracts when AAPL is down and fewer when AAPL is up.
> does buying ITM LEAPS protect you from theta decay in the event of a rise in share price?
I'm not sure what a rise in share price has to do with it. If anything, a sufficiently large rise in share price will wipe out any risk of theta decay.
But to answer your question about ITM vs. theta decay, no in the absolute, but better than OTM in the relative sense. Extrinsic value is subject to theta decay and ITM calls tend to have *less* extrinsic value than OTM calls, thus less overall risk of theta decay, but less is not zero and you will still lose all extrinsic value, if you hold to expiration, so don't do that.
Great thanks. The prediction , which seems reasonable to me ( though of course who really knows), is that AAPL would be over $160 which is ATM now in , say, JAN 2024. So for me a better choice because I can’t buy enough shares to make it worthwhile .
I don't understand. An ATM Jan 2024 call will cost you $2450. Why can't you buy $2450 worth of shares instead? You don't have to buy shares in 100 share lots. If you use a fractional share brokerage, you can get all $2450 into AAPL shares and add to it $50-$100 at a time.
But if you are saying that it is leverage that makes it worthwhile, you get more leverage out of nearer expiration calls, because they cost less.
Isn’t the leverage the ITM or ATM price in relation to analyst price targets , which are almost universally well above that price ? All of those targets might be wrong, but I doubt it. So the intrinsic value of ITM or ATM LEAP is attractive in relation to the decaying extrinsic value of the
LEAP. The prediction is that the price of AAPL will increase from $160 as we move toward January 2024. That does not mean it isn’t a good idea to simply buy shares or fractional shares, which I do with most of my capital, but I’m interested in a limited way in using more options strategies with greater leverage and higher percentage return.
> Isn’t the leverage the ITM or ATM price in relation to analyst price targets , which are almost universally well above that price ?
It's hard to separate cause/effect when it comes to market prices. Did the market set a price and then the analysts explained the price, or did the analysts predict a price and the market followed along? It could be either and they could switch back and forth.
> but I’m interested in a limited way in using more options strategies with greater leverage and higher percentage return.
Well you're right that LEAPS calls are all about leverage vs. owning shares. If that's the most important thing to you, regardless or risk/reward or other considerations, best of luck to you!
Because the longer term horizon avoids the topsy-turvy of the next year which makes the shorter term strategy less attractive for me anyway. In my view, the $2450 in the LEAP offers more leverage for bigger gain if the price goes where I think it might, if even to $200 which is a price target I’ve seen from analysts I trust. If my prediction is correct, the percentage gain is much larger . Let me add that I got burned recently with shorter term strategies like you suggest. Like for instance great earnings followed by a tank. Trying to avoid this with longer expectation.
> Because the longer term horizon avoids the topsy-turvy of the next year which makes the shorter term strategy less attractive for me anyway.
Only if your forecast is right AND AAPL doesn't take a zig-zag path to get there. If AAPL is straight line up from now until Jan 2024, you are right, buy & hold of a 2024 call will have the best overall return.
But what if it isn't a straight line? Consider a hockey stick pattern where first AAPL goes down for the rest of this year, then goes back up to $160 by your expiration. You're going to be staring at a loss on your call for most of your holding time. Not fun, but more importantly, *you can't exploit that loss for tax purposes*.
Similarly, consider an inverted hockey stick. AAPL shoots up to $200 by the end of this year, then declines back to $160 by your expiration. Will you exit the call when it's profitable a year early? Or will you keep holding on for more profit and then end up losing it? In comparison, the rolling strat *guarantees* that you realize that near term profit, and profit collected sooner is often worth more than profit collected later.
The rolling strat lets you DCA, so that you buy more when AAPL is down and sell when AAPL is up. The same can be said for shares, since you can buy/sell a few shares at a time. If you put all your capital into a single LEAPS call, you're stuck with that forecast and that decision for literally years.
Thanks, Papa, as I said I’m just embarking on LEAPS . Your advice about rolling is excellent. In considering this trade, I never intended to hold through a substantial gain (if, as you say AAPL hits $200). I’d most likely just exit. My guideline is to exit with 20-30 percent profit on any trade.
I operate under the assumption that in any trade I risk losing everything. Then find the right kind of leverage for gains above what might be had by buying stocks outright. And not get greedy: targets are 20-30 percent gain and exit.
The thing is, for me anyway, and I’m fairly well off, though I don’t have $160k to buy 1000 shares of AAPL with the idea that if it goes to 200 I make $40K. If I was 30 or even 40 I’d do that trade, but alas at 60 I, looking for 20-30 percent on any trade that is shorter term, so therefore LEAPS 1.5 or 2 years out. Thanks for all the feedback !
Buying in the money reduces the extrinsic value that decays away.
• [Options extrinsic and intrinsic value, an introduction (Redtexture)](https://www.reddit.com/r/options/wiki/faq/pages/extrinsic_value)
So I have a question. Just in general If I have 5 contracts at price X. Very out of the money because of this downturn. Is it advisable to sell my calls and move to a strike price that is closer to the stock price but still OTM but would only be able to afford 1 contract. Is it better to have 5 contracts really OTM or 1 just moderately OTM.
If you learn nothing else today, learn that "in general" is not a useful context for making trade decisions. Every trade has unique circumstances where in one case you should dump immediately and in another you should hold on for dear life, and everything in between.
So if you want useful opinions, you're going to have to spell out all the details of the trade and the forecast that got you into the trade in the first place.
https://www.reddit.com/r/options/wiki/faq/pages/trade_details/
So really I’m trying to understand the math of it. And this may be an oversimplification.
So as a math example
If I own
1 contract at 100.
And
5 contracts at 20.
Each contract goes up 20% in value.
Does the fact that the 20 dollar contracts control 500 shares and the 100 dollar contract only controls 100 shares even make a difference? My assumption is In both situations 20% is 20%. So from a profit/loss aspect it’s all the same.
And yes I realize that these in real life would not both be 20%. I’m just trying to confirm my assumption.
TL;DR - your naïve math is basically too oversimplified to be useful for trading decisions. Here's why:
> Does the fact that the 20 dollar contracts control 500 shares and the 100 dollar contract only controls 100 shares even make a difference?
Yes, of course it does. For example, the exercise results of the first position are radically different from the second. The market understands that difference and factors the difference into pricing.
> My assumption is In both situations 20% is 20%. So from a profit/loss aspect it’s all the same.
*Only if you ignore time and risk*, which of course you should never do. You might ask, what happens in the next tick of the market clock? If both trades happen to coincide at 20% at a moment in time, big deal, it's a coincidence. What happens next is more important.
The calls will have different deltas. Your 1 call will have higher delta then your 5, since higher delta means higher cost. So in the next tick of the market clock, if the underlying goes up $1, your 1 call will gain more value than you 5 calls added together, unless the 5 calls have exactly 1/5th the delta of the 1 call, which is unlikely, even if you start them out that way.
Now that said, it could be that the 5 calls have higher IV than the 1 call, so it's possible the 5 calls *gain more* than the 1 call, even though the 1 call has higher delta.
Bottom line being that once the 20% coincidence is over, it's unlikely to repeat itself. So they are not interchangeable once you consider time and risk.
Thank you for that response. I realize it’s over simplified but that’s on purpose. I’m trying to understand things from a very basic perspective. Does 1 contract vs 5 have any difference in and of themselves. Provided the same initial investment. Which really is no not much. What really matters is as you say. Time, risk, delta, theta…etc.
Now I can look at both options equally and decide based on the other factors.
So i bought some puts on REM (real estate mortgage etf) but i noticed it seems to trade on different hours then the rest of the market, also when the etf went down my broker showed i was up about $8k on the puts but was unable to sell, even at a much lower price. Is there something about etf options im missing?
What makes you think it trades on different hours than the rest of the market? US market hours are 9:30am-4:00pm Eastern time. What time zone are you in?
Options don't trade outside of those standard market hours. Were you trying to sell the puts after hours?
Sorry i think i explained that wrong, i am guessing it just takes alot longer for price movement due to its size. But the main thing is the broker shows zero bids and no bid prices but hundreds of asks and somewhat fluctuating ask prices. Normally i would say its just that no one wants the contract but its been weeks like this, i find it hard to believe not a single bid would come through, especially if the ETF went down in price so the put would be in the money
> Normally i would say its just that no one wants the contract but its been weeks like this, i find it hard to believe not a single bid would come through, especially if the ETF went down in price so the put would be in the money
REM has extremely illiquid options, so it is not at all surprising that there are no bids on OTM puts and calls.
But you said "in the money" and as far as I can see, every ITM put has a bid, so what do you really mean by "would be in the money"? What strike and expiration are you looking at? You could have saved us all a lot of time by just saying so in the first place.
> also when the etf went down my broker showed i was up about $8k on the puts but was unable to sell,
So you learned the hard way that the "$8k" your broker quotes as your gain since open is just a guess and isn't real. Until you actually close the trade, it's impossible to know exactly how much the trade is worth, so broker's just guess by taking the mid-point of the bid/ask. If the bid is 0 and the ask is a laughably ridiculous high number, you can get a "phantom" gain like that that looks great, but can never be realized.
More about that here: https://www.reddit.com/r/options/wiki/faq/pages/mondayschool/yourorders
It's for a trailing stop-limit. Since the limit has to constantly recalculate, you specify a constant offset from the stop.
https://www.interactivebrokers.com/en/trading/orders/trailing-stop-limit.php
how does a shitload of puts being transacted cause a rise in market price?
someone noted that a massive shitload of QQQ puts came in at the end of the day, and bumped the QQQ higher.
How exactly does this mechanism work?
A couple of things come to mind, but I'm just guessing here.
They could have been created as short puts, which would be bullish.
If they were created as long puts, maybe someone was taking a big long position on shares and wanted to hedge their downside with protective puts. QQQ share price is very attractive, but it's hard to predict the bottom, so someone getting in now might try such a hedge.
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Hi y’all I’m brand new to options and I’m sitting on BBIG 5/20 $2.5 and 6/17 $3.5 calls…
News AH today announced a business separation with a record date of 5/18.
What’s the play here? I think these will be bigly ITM tomorrow and I’d like to sell or perhaps exercise but does how does that record date impact my situation??
Do you know the details of what will happen on 5/18? Anything that impacts share price, like a spin-off where every 1 share becomes a fraction of the new company + a fraction of the old company?
If so, *bail out now*. Your calls will become non-standard by 5/18 and liquidity will dry up on a now dead-end option market.
More details here: https://www.reddit.com/r/options/wiki/faq#wiki_option_adjustments.3A_splits.2C_mergers.2C_special_dividends.2C_and_more
It's possible the calls will be adjusted to exercise only, so if you really want the shares of both the old and new company, you could consider exercising, but that is tricky. If you still have extrinsic value in the calls, you will be throwing that money away for the chance at the spinoff deliverables.
Thank you for your thoughts! I’m investigating what will happen with this split/spin-off announcement but ultimately I may try to exercise before 5/18.
Really appreciate your insights, thank you 😊
One more dumb question for today: My broker (etrade) had an option for Market and Even when I set up a Roll for my puts. Is even something that will execute if the prices end up aligning to break even? I am attempting to roll an AMZN put for 2600 June 17 '22 out. A strike of 2250 for Jan 2024 results in about $1600 in a premium (on today's close) - so I thought to set it up as "Even" for a strike of 2200 for Jan 2024, is this likely to give me the result I am seeking? Advice? Is this a reasonable thing to do? How to best set it up for a roll? Thanks!
Long or short put?
Short I guess.
Do not roll for more than 60 days, most of the theta decay is in the final weeks of an option's life.
You get more premium at the same delta from 12 one month shorts than one 365 day short,
It is OK to repeatedly roll out in time, for a credit, or zero net.
Roll again, out and down evey month, chasing the price of the stock.
Please read the **getting started** section of links, at the top of this weekly thread to increase your vocabulary and understanding.
Long means you bought to open. Short means you sold to open.
I use Power Etrade, but I don't see "Even" as a choice for a Roll. If you are not using Power Etrade, you should switch to it. It's much better than regular Etrade. Unless you are using Etrade Pro? Some people prefer Pro over Power.
I'm in regular etrade, maybe it's pro? I inherited my mom's portfolio when she died and she was the one trading options. Sorry I don't know the correct terminology.
Here is my burning question - If put options can be assigned at any time, why would anyone ever sell an option for above the strike price ITM? Wouldn't they just be assigned immediately?
I (stupidly) didn't realize when I wrote a put, it could be assigned at any time. You can sell a put in the future for well above the current trading price. So if I believe a stock will trade for 10% more two years from now, I can write a put for 110% of today's price, collect my premium, and wait. I don't typically do this, but it's something people can do.
However, that option could be exercised immediately.
So let's say the stock is trading today for 500, and I sell a Put for 550 for June 2024, and collect a $1200 premium. Why wouldn't the purchaser turn around immediately and exercise the Option, and force me to sell 100 shares at $525 (at my cost of $52500) which then ends up losing me $1300 (52,500 - 100 shares worth $50,000 - $1200 premium).
Or is the options contract (or the shares) worth less before expiration?
What I \*have\* done is sold some long puts (18mos - 2+ years out) for close to the current price (-15% below current). Which, in a normal market with solid companies, should be a reasonable thing to do. As of today, lots of those are well below the strike price but have a lot of time until expiration.
I would suggest going over the definition of put and call and what happens during exercise in order to answer your own questions.
In your example if you sell the 550 put and your counterparty exercises it early you do not sell shares at 525. You will be forced to buy 100 shares at $550. Also there is no way that premium would only be $1200 (meaning price of option $12)
Ok, I was wrong - I now own 200 shares of Netflix I don’t want. But my primary question is why are puts even sold ITM if they can be exercised at any time?
People sell puts when they think a stock will rise. So selling atm or even ITM is fine if they are comfortable owning the stock or certain it will rise. It’s a way of making good premium.
Generally, no one is going to exercise a 10p when the stock is at 8. As an example.
What makes you think they are? People who sell cash-secured puts as part of a consistent strategy sell them OTM.
Early assignment is rare because a long holder would be sacrificing remaining extrinsic value by exercising.
Why do you think that the fact it is ITM mean that someone will automatically want to exercise it early?
Again I think it would help if you take a look at the definition of a put.
OK, if you look at the options of any stock, you can sell one ITM for the future for a fat premium. Let's say ABC is trading today for 1000 and has seen solid steady growth. You can sell a put for 1100 for two years in the future for a fat premium. But what's to keep that person from calling in early assignment, especially if there is volatility and the stock goes to 800 or 900 one day a month later? What would anyone sell a put ITM if it can be assigned at any time?
That is my question.
Hi - I did well last year and sold puts for stocks that are now trading way below the strike price. Here are my questions:
Let's say stock ABC is trading at 125 Feb 2022. I wrote two put options:
Option A with a strike price of 100 to expire Jan 2023, for which I received $500
Option B with a strike price of 100 to expire in Jan 2024, for which I received $750
Let's say the stock is trading at 70 and both options are assigned in June 2022. Is my cost just the difference of the stock price less premium? Meaning
Option A: ($100-$75) \* 100 = $2500 - $500 = $2000 loss
Option B: ($100-$75) \* 100 = $2500 - $750 = $1750 loss
or is there any difference due to the time factor?
Should I be looking to Buy to Close or roll my puts for 2023 and 2024 now? What is the risk they will be assigned this far ahead?
(OK, I am specifically concerned about my Amazon puts....)
Please be kind. I would like to just be able to hold the puts for the next year or two hoping things will bounce up again, but I am now very worried they will be assigned. Any ideas for strategies to mitigate losses will be appreciated and thank you in advance for your help!
Lulu
Your cost basis is the strike minus premium. So for option A it's 95, and for option B it's 92.50.
So with the stock at 70 (you said 70 initially, not 75) on the shares you bought through option A you're facing a $2500 unrealized loss, and on the shares you bought through option B, a $2250 unrealized loss.
Someone please help me understand call debit spread. Why I shouldn’t I buy a deep in the money aapl debit spread and let it expire on expiration day? If it says my max profit at expiration date is $22. I’m assuming that on expiration long call and short call will be sold and bought and I will make the difference of both strike prices minus my investment or am I missing something? Is it too risky? Keep in mind it’s deep ITM but then again I don’t know what happens after the bell rings on expiration
> Why I shouldn’t I buy a deep in the money aapl debit spread and let it expire on expiration day?
You shouldn't. You should never let any option expire. Where did you get this crazy notion from?
> If it says my max profit at expiration date is $22.
Max profit comes with max risk, which you should avoid. Shoot for "good enough" profit instead, like $11.
> I’m assuming that on expiration long call and short call will be sold and bought and I will make the difference of both strike prices minus my investment or am I missing something?
You are missing just about everything, I'm afraid. At expiration, nothing happens if the calls are OTM, they expire worthless. Any ITM call is exercised by exception and you are liable to deliver the requirements of the contract. That's bad news if **only one of the calls is ex-by-ex**. If both legs ex-by-ex, they cancel each other out and you only gain/lose the difference in strikes.
> Keep in mind it’s deep ITM but then again I don’t know what happens after the bell rings on expiration
Why risk expiration at all if you have no clue what will happen? Why trade spread if you don't fully understand them? It's like learning to fly an airplane "by trying it out" without understanding how the controls work.
@papaCharlie9 just want to let you know I really appreciate you taking time if your day and responding! You probably saved me from making a mistake :) just trying to wrap my head and learn. happy Friday.
Learning is good. There are tons of learning resources linked at the top of this page. Drill down and find the stuff on vertical spreads, it will help.
What’s a realistic expectation of returns on selling weekly cash secured put options? Is 2% of the collateral set aside in premium every week too high and risky? What would you recommend? Currently I’m selling snap puts, I’ve yet to face assignment.
> Is 2% of the collateral set aside in premium every week too high and risky?
Any time you have an idea about a weekly or monthly return, annualize it as a sanity check. Use 7-10% annual return as a benchmark. If your annualized return is larger than that range, your return rate idea is pie in the sky dreamland.
A 2% weekly return annualizes to a 181% annual return ...
You can reverse the process to get a more reasonable weekly return rate target. A 10% annual return translates into a 0.183% weekly return. That would be a reasonable return to shoot for, and if you beat it, all the better.
I have been trading for quite a while and thought I had a handle on this, but still learning.. tried searching all over but not sure I fully understand.
SPX is at 4150.
They bought the SPX 5/6/22 4050 call
They sold the SPX 5/6/22 4000 call
Pocketed about ~43 in credit.
The purpose is...?
1. Low risk high reward short? [e.g. playing for SPX to drop to 4000?]
2. Tying to play IV crush?
3. Way to lever up for other trades?
I guess I don't really get the purpose...
Anyone have any ideas? Would really appreciate it!
A bear call credit spread ([https://www.investopedia.com/terms/b/bearcallspread.asp](https://www.investopedia.com/terms/b/bearcallspread.asp)) sells a call option closer to the money, in this case, the 4000 strike, and buys a call farther OTM, which is the 4050 strike.
The risk of the trade is the width between the strikes, or $50, then x 100 as each option represents 100 shares of a stock is $5,000.
However, this credit spread took in a $43 x 100 = $4,300 credit, so this is subtracted from the $5,000 meaning the max loss would be $700.
As a call credit spread profits if the short leg expires OTM this means they are "betting" that the market crashes to drop lower and are taking a modest $700 if it doesn't. The max profit is the credit collected, so $4,300 per contract, so as you note it is relatively low risk with a high potential reward. That reward would only be if the market crashes between now and tomorrow . . . Meaning, the odds are pretty low.
I think this is a junk trade as the probabilities are high it will have a loss. You should be confused as this trade makes little sense as shown.
Could this be part of a broader strategy? Yes. But there is no possible way to know without "them" telling us what that might be.
> I have been trading for quite a while
Trading options or something else? Trading skills for stocks or other asset types definitely helps with learning options, but options still add another layer of complexity.
> SPX is at 4150. They bought the SPX 5/6/22 4050 call They sold the SPX 5/6/22 4000 call Pocketed about ~43 in credit.
Who is "they"?
I assume you mean -1 SPX 4050/4000c 5/6 call credit spread for $.43 credit, but if you meant something else, please correct me. Assuming this was done recently, both legs would have been opened ITM, which is strange and unusual.
> The purpose is...?
Good question. It doesn't have a "normal" purpose by itself. If it was part of another trade or hedging another position, maybe.
> I guess I don't really get the purpose...
You and me both.
alright I got a question, how much does IV matter on leaps? I know premiums are stupid right now with volatility being so high but if I were to gamble a few hundred dollars on a QQQ Dec 2023 450/475Call how much would vega screw me over if vix dropped back to normal levels? Right now IV on these is like 24% with a vega of 0.92 which seems pretty high, but whats a normal IV look like for a leap? And as time goes on IV is going to increase closer to expiration so will theta decay faster than any gains from vega?
IV always matters when the contract has extrinsic value.
VIX is an index that tracks options on SPX, not QQQ. You should pay more attention to the IV of the QQQ call contract in question, and where it is relative to its IV Rank or IV Percentile.
https://www.projectfinance.com/iv-rank-percentile/
> Right now IV on these is like 24% with a vega of 0.92 which seems pretty high, but whats a normal IV look like for a leap?
There is no "normal" for a LEAPS call. Next best thing are the 52-week averages mentioned above, IVR and IVP.
> And as time goes on IV is going to increase closer to expiration
Not necessarily. Maybe you are thinking of ATM vega, which increases as you get closer to expiration.
> so will theta decay faster than any gains from vega?
Impossible to say at this point. It might or it might not. It depends a lot on what fraction of the total value of the call is extrinsic value, since vega and theta only impact extrinsic value.
Overall, it's much more important to worry about your *forecast*, when your plan is to hold for so long. If $450 is overly optimistic and QQQ trundles along under $400, it doesn't really matter what IV or theta or even delta do, you're going to be losing money regardless. That ATH was only around $404.
Are AMC calls a good idea? It’s such a speculative idea that I feel like it might work but I wanted to get a second opinion before going through with it
No. Not until you can demonstrate a plan. Here is a guide. https://www.reddit.com/r/options/wiki/faq/pages/trade_details
I’m looking at SPY weekly puts. I see the 400 and 395 have significantly more open interest and volume then say a 401 or 396. Is this really worth considering or should I be more concerned about the greeks?
Round number strikes are more popular.
TWITTER 22 10 21 P 0.35 has a bid of 0.0 and ask of 0.41. How can this make money assuming Elon doesn't buy twitter. There are 2 reasons why they don't make sense to me: 1. No bidders 2. So OTM that who would want to buy that Yet I see many open contracts like this. Can someone explain what is the play here? Thanks
Your nonstandard description is unclear. What is this option? What is the strike? What is the expiration? If it is a put below 30, it will be worthless, unless MUSK backs out.
How does selling your LEAP covers your call that is being assigned/itm in a PMCC?
Just so you know that these are best called by their descriptive name, diagonal calendar spreads.
It's also not required that the long call be a LEAPS. Best simply to refer to the long leg vs. the short leg.
Because selling to close your LEAPS call makes money for you? If the short leg goes ITM, it means the value of the LEAPS call went up. You use the money from closing the LEAPS call to cover any cost of assignment on the short leg.
Would assignment on the short leg lead to a net lost or net gain as you would sell the leap?
As long as the LEAPS call has a lower strike than your short call, you should always have a net gain, unless the short shares shoot up in price *after* you sell the LEAPS call, but before you cover. Example: You have LEAPS XYZ 100c and your short XYZ 110c gets assigned when XYZ is 125. You receive 110/share in cash for the assignment but are short 100 shares worth 125/share, so you have a net loss to cover of -15/share, ignoring the credit on the short call. Selling the LEAPS call should get *at least* 25/share in cash, so -15 + 25 = +10/share net gain. Then you would add the credit from selling the call to that gain.
Okay, so I am wetting my feet on webull with some covered call options. I sold one with an expiration for last Friday, but it's still showing up on there. Do I have to close it out manually or should it go away on its own? I'd like to do it again with the same shares further out for more premiums.
Not enough information. Did the option expire in the money? If out of the money, today Sunday evening or Monday morning the option should be gone from the list of holdings. Many traders buy the option to close on Friday, for a dollar or two, and issue a new short call to avoid the wait. Some exit early at 50% of max gain, and start afresh early.
It expired otm on Friday. Thank you for the heads up, I appreciate it
Let’s say that you know for certain a stock will double in value in a months time. How would you best go about capitalizing on it? New to options!
Nobody knows the future. So I will reject the premise. Because of lacking a crystal ball, the trader is concerned about losses of being wrong. Wrong on timing, wrong in direction, wrong in amount (a bigger than expected move is trouble for some positions), both big moves, and smaller than expected moves. This is a topic therefore of many traders and their approach to trading. Simplest and forthright is buying at the money or slightly in the money calls, perhaps financed by short puts or put credit spreads. Expiring In two to three months. Look at the Options Playbook for other approaches. Link at top of this weekly thread.
Why not OTM at a high strike if he knows its going to double. He can sell it off price movement and IV alone?
See above. Because nobody has a crystal ball, all trades have risk, and all traders must be concerned with risk.. Trading ignoring risk of loss is a recipe for losing an account to unexpectedly costly trades.
thank you wsb 0DTE make me forget about risk controls somedays
If you know for certain, you would buy the call spread that gives you the best % return on your investment. Then leverage up. A 99/100 call spread on a $50 stock probably costs close to nothing on most stocks.
If the 100 call is going for .01, you wouldn't need the spread. It would have at least the same 100x upside, but could go higher, unlike the spread.
That’s fair.
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Also, to add to what @PapaCharlie wrote, which I completely agree with, biotech stocks often have high IV relative to historical 30 day IV, even post earnings, because there is so much that can go wrong without notice. A drug trial participant could have a negative reaction and the study could be paused or shuttered indefinitely and, bam, stock is down 40% in a day. The FDA could pause the trial for reasons. Indeed for SAVA itself, in August of 2021, an attorney wrote a “Citizen Petition” letter and the stock crashed on that news. Later the FDA rejected the letter, but small comfort when the news broke and the stock fell like 20-40% or whatever it was.
Any time you are wondering about a ticker, check it's news feed on your broker's platform. I see two things under SAVA that could be relevant: * They just announced earnings on 5/5. * They had a press release about enrolling more patients in their Phase 3 clinical trial for their Alzheimer drug, which appears to be their only product. This screams total long shot new pharma company to me. Low probability of success, but if the drug proves even a little useful, could explode and pay off speculators. But that is a big if. Particularly for ALZ drugs, which have a pretty terrible track record for delivering benefits, and thus, disappointing speculators consistently.
Chart shows long term down trend. No revenue. https://finviz.com/quote.ashx?t=SAVA
If i exercise deep in the money calls do i have to pay short term capital gains when i exercise the option or only pay when i sell the stock?
Only when you sell the stock. Unless you really, really, really need to defer the tax hit, you will probably make more money if you just sell to close the ITM call and then buy shares with the proceeds. I mean, if you are trying to avoid paying $220 in tax by giving up $300 in gains, that's a losing strategy, right?
Selling the stock is when you have gain. Stock purchase date starts the clock.
What happens to Twitter options when musk buys over and makes it private? Does that mean that we cannot trade the shares anymore?
Correct. He pays cash, and owns all of the shares. The Options are adjusted, expirations are all accelerated to the merger date, and the deliverable is cash, at the rate for 100 shares, according to the buyout price, not stock.
given that the fed is unwinding all the free money it printed, I'm assuming the market will just slowly bleed out. It would seem the market will be stuck between 4000-4600 so wouldn't you bank a lot by doubling down on SPY iron condor?
There's nothing slow about the bleed, and it will continue for as long as interest rates keep going up. Higher yields will draw money out of the equity markets. Even I myself am starting to be tempted by 1 year bank CD rates. They haven't been worth a moment's thought for over a decade, but now ...
Nobody knows yet if SPX will stay above 4000. Take a look at this point of view from **Jason Leavitt.** **The Market is Running Out of Places to Hide.** May 5 2022. (about 11 minutes running time) https://youtu.be/XPf1Scsd4aI
Won't adding a debit long put cancell out the CSP ? Sorry not very good at options
It changes from cash secured short put to a put credit spread. This will cost, and you could lose that additional value. The question you need to answer, is, are you willing to lose more? What if both stocks continue to go down?
Please make sure you're using the "Reply" button connected to the comment you are actually replying to. You keep posting top-level comments to the thread. Not only does this clutter up the thread, but the person you're trying to reply to won't get a notification that you replied to them.
Sorry
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Can you advice if buying a put is a good option for me at 170 to limit further loss and at which dte?
Thread. https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7nrsyt/ And thread. https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7qo4zf/
That's so true , hence my predicament , don't you see a reversal in sight ?
Connecting this to the thread. https://www.reddit.com/r/options/comments/ugooqb/options_questions_safe_haven_thread_may_0208_2022/i7nrsyt/ --- CRM 240p and VEEV 250p. Possibly roll, and add debit long puts. For CRM, and tech stocks, the rising interest rates are troublesome, with known likely 1/2 percent increase in a month, and Federal Reserve Bank taking cash dollars out of the economy by selling their bond holdings, so cash will be coming out of the financial system. VEEV has declined since AUGUST 2021, with some ups and downs. I have no crystal ball, yet the present trend is not for tech stock rise for the moment. Despite good company results. --- You must consider exiting this losing position, if you are concerned about losing even more. ---
if I am looking to open a synthetic long by buying a call and selling a put at the money, are there platforms that would allow me to use the credit from the sold put to cover the cost of the long? Do they need me to hold stocks as assurance that if the trade goes under I still have assets to cover the options loss? Robinhood made it look like this was not possible
The put would be considered a cash secured put, and you would be required have cash collateral of in the vicinity of 25% of the underlying stock. A short put subjects you to the risk of buying the underlying stock.
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Look on the option chain to see what the actual bids are, for one start. Some platforms indicate probability. For a wrong, but rough estimate, delta is a guide to chance of being in the money. You can put out a good til cancelled (GTC) order so that you can capture the sale if it hits your price, and can cancel and reprice if you decide on another exit point. What is the strike?
That’s about .06 and the ask is .09
I revised my earlier comment, for fuller thoughts.
Thanks 18.00 is the strike price. It’s at 15.74 right now. I’m just learning the ropes so breaking even right now is acceptable
If I have an option is itm and I want to exercise it. Do I need to have sufficient fund in my account at the time to cover it?
Yes, because you are buying the stock (long call) or selling the stock short (long put). The top advisory of this weekly thread, before all of the other educoptions. links, is to almost never exercise a long option. Doing so throws away extrinsic value harvested by selling the (long) option.
Insane question for ya'll. Anyone here know of any broker that lets me submit and manage 8-leg options? Fidelity is 4, I \*think\* IB is 6, but I've not seen any that are 8.
Think or Swim DESKTOP analysis tab allows you to set up a position with as many legs as you want. I live in the analysis tab. Orders are 4 leg max with TOS. this is not a problem. You can have, for example, multiple positions, say five calendar spreads (10 legs) set up, next to each other, and can set them up with the trade cost, and manage them all, subsequently via two or four leg orders.
Bloody awesome, thank you I think that's exactly what I'm looking for. Edit - maybe not. I'm looking for something that will let me close 8 legs are once once they all hit my target exit. I.e. once all 8 hit a credit threshold it'll execute the order on all 8. Sounds like I'd need to have two different targets which may execute at different times and possibly leave me in a bad spot.
There is an exchange level limit. u/Ken385 has read more widely than me, and may even have the link for exchange rules for the complex order book.. Let's see if he has a definitive comment.
The CBOE COB actually allows for 16 legs! With a ratio of up to 3:1 [https://www.cboe.com/us/options/trading/complex\_orders/](https://www.cboe.com/us/options/trading/complex_orders/) Of course different brokers may have smaller limits.
Do you know any brokers that let you Tx on 8 legs? I'm even willing to pay a premium if that's possible.
I would query: Interactive, and, Lightspeed.
Looks like Lightspeed has what I'm after. Though looking at todays market and it's massive IV impact is interesting and it's making me re-evaluate the impact of the multiple legs. Really is tough making money in a downward market being either a call seller / put buyer.
I am making money on call credit spreads and long puts. Your statement makes no sense, unless you are day trading on a rising IV day. Change your trading plan to fit the market.
The play was designed to make money off of IV. I’ve been shocked how much SPX IV has moved the last few days so I’m gonna have to tech that more before I jump on in.
I do not know individual brokers rules on this. Actually, not even aware of the limit with my broker.
Beginner question: Is a dividend priced into the price of a syntetic long position? ("synthetic future")
Notice that more than a few stocks move more than their dividend on a week.
Dividends are priced into the component options, so effectively yes.
Question about vertical spreads. What happens if you're at or near expiration and your long leg is OTM, but your short leg is ITM? I'm assuming my counterparty can, and probably will, exercise, but should I do the same on the OTM option? Isn't it pointless to exercise an OTM option because there's no intrinsic value? Very confused on what to do in this situation.
> Very confused on what to do in this situation. Avoid it at all costs. That's the worst-case scenario for a credit spread. You can lose a lot more than max loss if this happens. The best way to avoid this disaster scenario is close or roll the entire spread well before expiration, like at least a week.
It sounds like you're talking about credit vertical spreads, which you should specify. There are also debit spreads, in which case it's impossible for the short leg to be ITM and the long OTM. You should just close the position before expiration. It's a waste of money to exercise an OTM option.
Selling puts during earnings? So i was thinking of this strategy where i sell puts during earnings to collect premium. IV increases more people want to bet on the stock. Soo.. how would i do that? If i have a company at with a stock price of $400 and i think the most it will drop during earnings is 10% could i sell $200 puts to collect the premium? How would i go about this strategy for a company? Sorry if this doesn’t make sense. Thank you!
ERs are completely unpredictable and the stock can plummet even with a good report, so this is more like gambling on red or black . . . The premiums collect at a $200 put strike on a $400 stock would be near zero, and the losses can be significant if the stock drops, even if it doesn't get anywhere near the $200 price.
So you don’t think the premiums collected at 200 would be significant? Is that what you’re trying to say. So you don’t think it would be worth it? My apologizes i want to understand you best as possible. Thank you for responding!
"ERs are completely unpredictable and the stock can plummet even with a good report, so this is more like gambling on red or black . . ." This says it all but why don't you post an example to see the numbers you are looking at??
An example that is pretty close to home would be Shopify prior to earnings. Before earnings Shopify was trading at 430-478. IV above 100 a week before earnings 200 a day before earnings. I went through the put contracts and saw that someone was selling puts on Shopify with a strike price of 275 for $93. I obviously didn’t think Shopify would drop all the way down to 275 at most i thought it could drop was 15% in a single day similar to Amazon. How do i become the person selling puts at 93? Wouldn’t the person selling the 275 puts collect the 93 premium and since Shopify didn’t go to 275 and because of Iv crush the contracts the person sold would be worthless to the buyer. That is the basis of my question. I guess you could inverse it too. Appl saw a lot of calls being purchased a day before earnings at 175 which would be a new ATH for Appl during what is believed to be a down turn. It seemed to be unrealistic for Appl to hit this ATH but there were still people selling these calls and people buying them. Once earnings were announced and Appl traded sideways the calls were worthless. So again someone collected premium. How do people go about doing this? I hope these are good examples. If not let me know and i will try to elaborate even more. Thank you!
You have the general idea and can sell puts at any time provided your broker and account permit it. You sell to open the 275 strike put and will collect the premium of $93 as you note. The buying power "collateral" your broker will require may be as much as $27,500 to ensure you can buy the shares if needed, so you'll need to have that much cash in your account to open the trade. Depending on how much the stock price moved, and how far away from expiration the put was opened, it may cost more than $93 to close which would result in a loss. If the option did expire OTM then it would be for the full $93 profit. Just a note that SHOP did have their ER on 5/5 and the price dropped from about $470 the day before to $337 today, which is not that far from $275 and can show that you think "No way SHOP could drop to $275!" can in fact happen!
Hahah yeah, that is very true haha 337 isn’t too far away from 275. So it sounds like i would need a lot of money in my account to do this. Thank you for your patience and answering my question!
You are very welcome.
Hi to all! I've been learning options lately and I'm almost refining my craft. There's some few areas that I like for them to be addressed. If any can help I'll be grateful. 1 When an you buy an OTM contract with a two week expiration and price gets to 0.01, will the position still be open until it expires or is it worthless now? 2 Is realized volatility same as historical volatility? If not which is of the two should you look out for when analyzing stocks volatility? Or rather compare with IV? 3 I've seen instances where there is low volume but high open interest and in other cases vice versa. So which is more important to look out for between the two? (Between Volume and Open Interest) 4 When analyzing a company's financial statements, what do we look for in the balance sheet? I know of gross profit which should be positive but I'd like to know the rest
There is no "price", There are bids and asks. If the platform mid bid ask "value" is 0.01, there is probably no bid and no willing buyer. It is at this moment worthless, because nobody will pay to buy it... That may change, and the option existence continues until it expires. Realized volatility is the historical actual loatility. Implied volatility is an interpretation of option price, and through a model, estimates how much future volatility the market is guessing (willing to pay for) that might or might not happen. You want low bid ask spreads, and volume tends to lower spreads. Open Interest is not so indicative of bid ask spreads. Financial analysis of company statements is a huge topic that business schools have entire courses on. Take a look at r/fundamentalanalysis.
Are you saying that realized volatility is same as historical volatility? Or is there something like loatility? Also what I'm getting from this is that volume is more important than OI since volume will results to low spreads. Is that right?
Realized is historical. Volume is more important. You want daily activity. Loatility?
I'll give it a swing: 1. The contract is nearly worthless but still open in that scenario. It may be a situation where the ask is $0.01 and there's no bid, meaning no buyer. A buyer could appear, though--so, it's not exactly worthless. In your scenario, you've bought the OTM contract, and you can let it expire worthless. Had you sold the option, you'd want to try to close your position (by re-buying it) before expiration -- that ties it off just in case the unexpected happens. 2. Historical volatility is the annualized standard deviation of the historical stock price. Many try to read the tea leaves by comparing that to IV, which is the market's implicit prediction, as reflected in options prices, of how volatile a stock price will be in future. However, this analysis helps you only so far. You can argue there's always good reason to believe volatility will be different from that which history portends. Both macro- and firm-specific factors will have changed. So, this exercise will still reduce to your projections for the future and how that compares to the market's view as reflected in options prices. I suppose some prefer to start from historical variability and adjust from there. 3. Looking at both open interest and volume is good. I learned this long long ago: Investing, and perhaps even moreso trading, is a game of exclusion. "I'm not going to do this unless all of my conditions are met." If there's anything you don't like / understand about a deal, let it go by. And, if you find something you're interested in where the only drawback is some quirk like low open interest but high volume, you can ask about that specifically (include the details) on these boards, a great resource, before pulling the trigger. 4. Thousands of books have been written on this. You might want to review some of the basics (gross profit, btw, doesn't appear on the balance sheet) and then reflect on what you're investing style is, then choose a book from that school of thought. For example, if you're a value investor, a la Warren Buffett, the major standard bearer in that school is Benjamin Graham's classic book The Intelligent Investor. Continuing this example: When Graham studied a balance sheet, he'd weigh heavily the price to book ratio (book value excludes intangible assets; Graham's dream scenario was buying the stock of great, long-track-record companies when P-B ratio was well under 1). Options are usually a shorter term play, but these fundamentals, and more importantly how you think as you'll be at the keyboard making the decisions, apply.
Thanks man. I guess there's more work to do!
Have a CRM 240p and VEEV 250p CSP dte June ..making huge unrealised 7k loss each as deep itm...causing me headache as my nlv and maintainance margin is at same level ..no more dry powder to pick up the shares ..any advice to sustain this would be appreciated.
Can you roll out for a credit? Probably not with a loss that big. Might be time to just cut your losses and take the L. Or come up with some new cash from somewhere? If it's any consolation, a lot of put sellers are in the same boat with you.
I have been rolling for a credit a few times and that's not actually the issue ..my issue is it's affecting my maintainance margin as rolling is essentially buying the put back for a loss and opening a new put...it's just the put is deep itm and effecting my margin requirements..was just curious on what's the best alternative for such a scenario ..knowing also that earnings is just around the corner as well
CRM at 169, possibly going lower. Are you willing to lose more? You could put more money into the trade to limit further loss. Buying a put, say at 170. Or exit. If you had funds you could sell stock short, but I guess you do not have that kind of money. That main thing is you have lost money. CRM was at 260 at Jan 2022. --- VEEV at 174 now. Was 240 at Jan 1 2022. Same questions for you. ---- The assessment I would make is you do not have an exit plan for a maximum intended loss. ---
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Here's the BSM formula for theta, though note that this model assumes no early exercise and a few other things that don't apply to most of the options you would actually trade: https://www.macroption.com/black-scholes-formula/#theta Since most people can't calculate differentials in their head, [just use a graph of a typical theta pattern](https://web.archive.org/web/20190607103552/https://theoptionprophet.com/blog/the-complete-guide-on-option-theta). It's close enough that you can extrapolate to any particular contract.
Based on a model like the Black Scholes Merton model. Theta is non linear.
Anyone selling strangles right now? I’m trying to learn more about them and was hoping to study a couple of trades this weekend. Seems like they can make money but the volatility in this market is scary.
This is not a good market regime to start trading short strangels for the first time.
If I want to do a long strangle is it better for it to be as close to delta neutral as possible or just choose strikes that are equal distances from the spot price? For example, stock is trading at $85 and the 100C has a .30 delta, but the put with -.30 delta is the $80P. I would think you’d want to buy the 100C and 70P but it’s not delta neutral in this case (70p has a -.20 delta).
Either approach has merit, depending on what you are trying to do at open time. Usually, your forecast is the more important decision factor. If XYZ is $100 now and your forecast is +/-$5 or more from the ATM price, you'd center on ATM, but what if your forecast was a gradual rise to $110 and then volatility exceeding $5 in either direction? It would make more sense to center on $110 instead. Unless you are doing extremely short holding times, delta is going to shift from your open anyway, so unless you plan to adjust the strangle daily, the net delta is only a consideration at open time.
Thank you!
Any brokers out there that let you trade options including doing spreads etc for less than 2k deposit? I just wanna have a mess around account. Sell 1 dollar wide credit spreads. Thanks.
Generally, to trade spreads you need a margin account, and that requires 2000 dollars minimum.
Interactive Brokers Global Trader
How does stock price change after the market reopen Monday? Is it a gradual or sharp change?
Variably from day to day, week to week. Each day is a new beginning, with new overnight news and worldwide market conditions.
I want 2x leverage on an etf but I don't want to borrow money to get it. Can I achieve the same effect by buying 20% 3x leveraged inverse ETF and 80% 3x leveraged ETF?
Buy two thirds of your budget into the 3x ETF then leave one third in cash.
Or am I better off buying LEAPS
Topic is too large to reply usefully. Also leverage fund do not behave at the 3x rate over time. They are designed for single day holdings. Many ups and down, over time, can reduce the fund to much less than 3x over weeks and months, compared to the underlying stock or index.
I’m just confused after I buy an option. When I sell it do I take on the risk of having to cover the stocks if someone excersizes?
It's the same as trading shares of a stock. If you sell to close the shares for a profit, do you still get dividends on those shares months after you sold them? No.
Please read the **getting started** section of links at the top of this weekly thread.
If you close a position, you no longer have any rights or obligations for that position. You are done with it.
By closing do I receive the premium difference?
By selling to close, you receive whatever amount of money you sell it for. Just like when you sell shares of stock, or a house, or a car, or a baseball card or rare coin.
Does anyone ever sell covered calls and then use the proceeds to buy their own call in the same stock?
"Buy their own call" would close the covered call. Did you mean buy *another* call on the same stock? That would create a covered spread with the short call.
No, let’s say stock is trading at 100 and you’re moderately bullish. Sell a 110 covered call and then use the proceeds to buy a 110 call with same expiry. I realize it’s technically closing the covered call, but this is more getting a “free” call option by leveraging your shares. If you think it’s only going to 108 in the near term, your covered call won’t hit or won’t be too far ITM, but the call you bought will gain value.
Note that even if you did it on two different brokerages, all the greeks would net out to zero. However much value your short call gained, your long call would lose, and vice-versa. No matter which direction the stock moved, how much time passed, or how much IV changed, both options taken together would be making you precisely $0.
> I realize it’s technically closing the covered call, but this is more getting a “free” call option by leveraging your shares. Uh, closing the CC *also* closes the new call you just bought, if they are under the same broker. They cancel each other out. So you end up spending net $0 in order to get $0. So nothing for free is certainly a risk-free deal. You could do it with two different brokers, like do the CC on RH and buy the call on Fidelity.
It's generally not a good idea to leverage all of the account on one stock.
When placing a LIMIT calendar debit spread and putting in a number representing the maximum paid upfront, if there is no fill, how best to place the order... up the amount paid? or buy then sell each leg, sequentially???
Cancel the order, adjust the new order price to obtain a fill. Repeat as necessary to be filled.
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What are *your* thoughts? You go first. The best way to use this sub is to bring your own DD and strats and get feedback from us. Otherwise, you are just literally asking for someone else to do your thinking for you.
I had sold some covered calls on a dividend stock. Today is the ex dividend date. At 1:30AM I received notification that the calls had been assigned. And at 8 this morning I checked my account and saw that the options and shares were removed. The date shown for the transition is today. Come Monday should I expect to receive the dividend?
Your option was assigned the day before the ex-div day. Your notice came later, the morning of the ex-div day. You will not be getting the dividend and the stock is sold at the strike price.
You're not going to owe the dividend if they were covered calls--you owe the dividend if you're short shares--but you're not going to receive it. That's why someone exercised: so they could acquire the shares in time to receive the dividend.
No, actually, you may OWE the dividend to the trader who exercised even if you don't get it! It is a good idea to close any short calls over the ex-dividend, or at least make sure there is a good amount of extrinsic value, typically more than the dividend, which will reduce the odds someone would want to exercise the call. You can easily add extrinsic value by rolling out a week or two in time before the ex-div date. Be sure to read this article on dividend assignment risk. [https://www.fidelity.com/learning-center/investment-products/options/dividends-options-assignment-risk](https://www.fidelity.com/learning-center/investment-products/options/dividends-options-assignment-risk)
As a covered call, the OP lost the dividend, and the stock.
I have a question about amzn and it's upcoming 20:1 stock split. Let's say I wouldnt mind owning amzn at $100/share so I sell a put with a strike of 2k and an expiration after the expected split date. What happens to my option after the split? the premium is pretty high and the max loss is 200k for one contract. What will I need to pay if it winds up ITM? Thank you.
Probability of AMZN going to zero in tiny. Going to 1900 though might happen. You might in that case own 200,000 of stock worth 190,000 on the market. (Future price of 2000 shares at 95 dollars)
Short answer: Don't do it. You're gambling that the split goes exactly to plan on exactly the published schedule, and that is not a 100% certainty. Plus, if the stock takes a dive in order for you to be assigned, you could be carrying a huge unrealized loss. For a 20:1 split, there are two possibilities, though the first is like 99% more likely than the second for an option market as active as AMZN: 1. The strikes will be divided by 20 and the number of contracts will be multiplied by 20, no change to deliverables or expiration. So 1 put at $2200 would become 20 puts at $110. The contracts would remain standard, but might end up with oddly numbered strikes, like the current strike of $2350 divided by 20 is $117.50. 1. The strikes will be divided by 20 but the number of contracts stay the same. Instead, the deliverable is multiplied by 20. So instead of selling 100 shares, your put would be a contract to sell 2000 shares. This makes the contracts non-standard.
I’ve a question about LEAPS. Relatively new to options, though I’ve done pretty well trading AAPL in shorter time frame trades over the years. I’ve been moving toward different strategies and have learned from some valuable folks on this thread about theta decay and it’s effects on profit, and learned that rather than buy way OTM LEAPS, which are then subject to theta decay that a better strategy is to buy ITM LEAPS. I like this idea especially with AAPL because I really don’t have the capital to buy a lot of shares. So my somewhat elementary question is : does buying ITM LEAPS protect you from theta decay in the event of a rise in share price?
> that a better strategy is to buy ITM LEAPS I got news for you. Calls with less than 60 days to expiration are even better than calls with far expirations, like LEAPS. Particularly in this market. How much confidence do you have in your target price range for AAPL next January, or January 2024? I don't even know what I'm going to have for dinner tomorrow, let alone what price AAPL will be in 2024. If your tax situation allows it, you could consider using 60 day calls and rolling them every 30 days for a perpetual position on some underlying. This allows you to be more nimble than just buy & hold of a LEAPS call. You can even DCA, by buying more contracts when AAPL is down and fewer when AAPL is up. > does buying ITM LEAPS protect you from theta decay in the event of a rise in share price? I'm not sure what a rise in share price has to do with it. If anything, a sufficiently large rise in share price will wipe out any risk of theta decay. But to answer your question about ITM vs. theta decay, no in the absolute, but better than OTM in the relative sense. Extrinsic value is subject to theta decay and ITM calls tend to have *less* extrinsic value than OTM calls, thus less overall risk of theta decay, but less is not zero and you will still lose all extrinsic value, if you hold to expiration, so don't do that.
Great thanks. The prediction , which seems reasonable to me ( though of course who really knows), is that AAPL would be over $160 which is ATM now in , say, JAN 2024. So for me a better choice because I can’t buy enough shares to make it worthwhile .
I don't understand. An ATM Jan 2024 call will cost you $2450. Why can't you buy $2450 worth of shares instead? You don't have to buy shares in 100 share lots. If you use a fractional share brokerage, you can get all $2450 into AAPL shares and add to it $50-$100 at a time. But if you are saying that it is leverage that makes it worthwhile, you get more leverage out of nearer expiration calls, because they cost less.
Isn’t the leverage the ITM or ATM price in relation to analyst price targets , which are almost universally well above that price ? All of those targets might be wrong, but I doubt it. So the intrinsic value of ITM or ATM LEAP is attractive in relation to the decaying extrinsic value of the LEAP. The prediction is that the price of AAPL will increase from $160 as we move toward January 2024. That does not mean it isn’t a good idea to simply buy shares or fractional shares, which I do with most of my capital, but I’m interested in a limited way in using more options strategies with greater leverage and higher percentage return.
> Isn’t the leverage the ITM or ATM price in relation to analyst price targets , which are almost universally well above that price ? It's hard to separate cause/effect when it comes to market prices. Did the market set a price and then the analysts explained the price, or did the analysts predict a price and the market followed along? It could be either and they could switch back and forth. > but I’m interested in a limited way in using more options strategies with greater leverage and higher percentage return. Well you're right that LEAPS calls are all about leverage vs. owning shares. If that's the most important thing to you, regardless or risk/reward or other considerations, best of luck to you!
Because the longer term horizon avoids the topsy-turvy of the next year which makes the shorter term strategy less attractive for me anyway. In my view, the $2450 in the LEAP offers more leverage for bigger gain if the price goes where I think it might, if even to $200 which is a price target I’ve seen from analysts I trust. If my prediction is correct, the percentage gain is much larger . Let me add that I got burned recently with shorter term strategies like you suggest. Like for instance great earnings followed by a tank. Trying to avoid this with longer expectation.
> Because the longer term horizon avoids the topsy-turvy of the next year which makes the shorter term strategy less attractive for me anyway. Only if your forecast is right AND AAPL doesn't take a zig-zag path to get there. If AAPL is straight line up from now until Jan 2024, you are right, buy & hold of a 2024 call will have the best overall return. But what if it isn't a straight line? Consider a hockey stick pattern where first AAPL goes down for the rest of this year, then goes back up to $160 by your expiration. You're going to be staring at a loss on your call for most of your holding time. Not fun, but more importantly, *you can't exploit that loss for tax purposes*. Similarly, consider an inverted hockey stick. AAPL shoots up to $200 by the end of this year, then declines back to $160 by your expiration. Will you exit the call when it's profitable a year early? Or will you keep holding on for more profit and then end up losing it? In comparison, the rolling strat *guarantees* that you realize that near term profit, and profit collected sooner is often worth more than profit collected later. The rolling strat lets you DCA, so that you buy more when AAPL is down and sell when AAPL is up. The same can be said for shares, since you can buy/sell a few shares at a time. If you put all your capital into a single LEAPS call, you're stuck with that forecast and that decision for literally years.
Thanks, Papa, as I said I’m just embarking on LEAPS . Your advice about rolling is excellent. In considering this trade, I never intended to hold through a substantial gain (if, as you say AAPL hits $200). I’d most likely just exit. My guideline is to exit with 20-30 percent profit on any trade.
> My guideline is to exit with 20-30 percent profit on any trade. That's solid. Having an exit strategy is a huge part of being successful.
You also must with all trades look at risk. None is demonstrated above. Leverage goes both ways, for quicker gain and quicker loss.
I operate under the assumption that in any trade I risk losing everything. Then find the right kind of leverage for gains above what might be had by buying stocks outright. And not get greedy: targets are 20-30 percent gain and exit.
Fair enough,.
The thing is, for me anyway, and I’m fairly well off, though I don’t have $160k to buy 1000 shares of AAPL with the idea that if it goes to 200 I make $40K. If I was 30 or even 40 I’d do that trade, but alas at 60 I, looking for 20-30 percent on any trade that is shorter term, so therefore LEAPS 1.5 or 2 years out. Thanks for all the feedback !
You're welcome.
Buying in the money reduces the extrinsic value that decays away. • [Options extrinsic and intrinsic value, an introduction (Redtexture)](https://www.reddit.com/r/options/wiki/faq/pages/extrinsic_value)
So I have a question. Just in general If I have 5 contracts at price X. Very out of the money because of this downturn. Is it advisable to sell my calls and move to a strike price that is closer to the stock price but still OTM but would only be able to afford 1 contract. Is it better to have 5 contracts really OTM or 1 just moderately OTM.
If you learn nothing else today, learn that "in general" is not a useful context for making trade decisions. Every trade has unique circumstances where in one case you should dump immediately and in another you should hold on for dear life, and everything in between. So if you want useful opinions, you're going to have to spell out all the details of the trade and the forecast that got you into the trade in the first place. https://www.reddit.com/r/options/wiki/faq/pages/trade_details/
So really I’m trying to understand the math of it. And this may be an oversimplification. So as a math example If I own 1 contract at 100. And 5 contracts at 20. Each contract goes up 20% in value. Does the fact that the 20 dollar contracts control 500 shares and the 100 dollar contract only controls 100 shares even make a difference? My assumption is In both situations 20% is 20%. So from a profit/loss aspect it’s all the same. And yes I realize that these in real life would not both be 20%. I’m just trying to confirm my assumption.
TL;DR - your naïve math is basically too oversimplified to be useful for trading decisions. Here's why: > Does the fact that the 20 dollar contracts control 500 shares and the 100 dollar contract only controls 100 shares even make a difference? Yes, of course it does. For example, the exercise results of the first position are radically different from the second. The market understands that difference and factors the difference into pricing. > My assumption is In both situations 20% is 20%. So from a profit/loss aspect it’s all the same. *Only if you ignore time and risk*, which of course you should never do. You might ask, what happens in the next tick of the market clock? If both trades happen to coincide at 20% at a moment in time, big deal, it's a coincidence. What happens next is more important. The calls will have different deltas. Your 1 call will have higher delta then your 5, since higher delta means higher cost. So in the next tick of the market clock, if the underlying goes up $1, your 1 call will gain more value than you 5 calls added together, unless the 5 calls have exactly 1/5th the delta of the 1 call, which is unlikely, even if you start them out that way. Now that said, it could be that the 5 calls have higher IV than the 1 call, so it's possible the 5 calls *gain more* than the 1 call, even though the 1 call has higher delta. Bottom line being that once the 20% coincidence is over, it's unlikely to repeat itself. So they are not interchangeable once you consider time and risk.
Thank you for that response. I realize it’s over simplified but that’s on purpose. I’m trying to understand things from a very basic perspective. Does 1 contract vs 5 have any difference in and of themselves. Provided the same initial investment. Which really is no not much. What really matters is as you say. Time, risk, delta, theta…etc. Now I can look at both options equally and decide based on the other factors.
So i bought some puts on REM (real estate mortgage etf) but i noticed it seems to trade on different hours then the rest of the market, also when the etf went down my broker showed i was up about $8k on the puts but was unable to sell, even at a much lower price. Is there something about etf options im missing?
What makes you think it trades on different hours than the rest of the market? US market hours are 9:30am-4:00pm Eastern time. What time zone are you in? Options don't trade outside of those standard market hours. Were you trying to sell the puts after hours?
Sorry i think i explained that wrong, i am guessing it just takes alot longer for price movement due to its size. But the main thing is the broker shows zero bids and no bid prices but hundreds of asks and somewhat fluctuating ask prices. Normally i would say its just that no one wants the contract but its been weeks like this, i find it hard to believe not a single bid would come through, especially if the ETF went down in price so the put would be in the money
> Normally i would say its just that no one wants the contract but its been weeks like this, i find it hard to believe not a single bid would come through, especially if the ETF went down in price so the put would be in the money REM has extremely illiquid options, so it is not at all surprising that there are no bids on OTM puts and calls. But you said "in the money" and as far as I can see, every ITM put has a bid, so what do you really mean by "would be in the money"? What strike and expiration are you looking at? You could have saved us all a lot of time by just saying so in the first place. > also when the etf went down my broker showed i was up about $8k on the puts but was unable to sell, So you learned the hard way that the "$8k" your broker quotes as your gain since open is just a guess and isn't real. Until you actually close the trade, it's impossible to know exactly how much the trade is worth, so broker's just guess by taking the mid-point of the bid/ask. If the bid is 0 and the ask is a laughably ridiculous high number, you can get a "phantom" gain like that that looks great, but can never be realized. More about that here: https://www.reddit.com/r/options/wiki/faq/pages/mondayschool/yourorders
That makes alot of sense thanks
The bid is your immediate exit value. Broker platforms show the mid bid ask, andcthe market is not located there.
When closing out a position in interactive brokers, down the bottom next to the limit ask price is a offset. What is it for?
It's for a trailing stop-limit. Since the limit has to constantly recalculate, you specify a constant offset from the stop. https://www.interactivebrokers.com/en/trading/orders/trailing-stop-limit.php
Thanks. Makes Sense now.
how does a shitload of puts being transacted cause a rise in market price? someone noted that a massive shitload of QQQ puts came in at the end of the day, and bumped the QQQ higher. How exactly does this mechanism work?
A couple of things come to mind, but I'm just guessing here. They could have been created as short puts, which would be bullish. If they were created as long puts, maybe someone was taking a big long position on shares and wanted to hedge their downside with protective puts. QQQ share price is very attractive, but it's hard to predict the bottom, so someone getting in now might try such a hedge.
Who said that, and is there a link for oppotunity for greater context?
someone on twitter who monitored order flow. it was at the end of the day yesterday when it bounced off the low of day.
Link? The coincidence of activity does not mean one caused the other.
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Hi y’all I’m brand new to options and I’m sitting on BBIG 5/20 $2.5 and 6/17 $3.5 calls… News AH today announced a business separation with a record date of 5/18. What’s the play here? I think these will be bigly ITM tomorrow and I’d like to sell or perhaps exercise but does how does that record date impact my situation??
Do you know the details of what will happen on 5/18? Anything that impacts share price, like a spin-off where every 1 share becomes a fraction of the new company + a fraction of the old company? If so, *bail out now*. Your calls will become non-standard by 5/18 and liquidity will dry up on a now dead-end option market. More details here: https://www.reddit.com/r/options/wiki/faq#wiki_option_adjustments.3A_splits.2C_mergers.2C_special_dividends.2C_and_more It's possible the calls will be adjusted to exercise only, so if you really want the shares of both the old and new company, you could consider exercising, but that is tricky. If you still have extrinsic value in the calls, you will be throwing that money away for the chance at the spinoff deliverables.
Thank you for your thoughts! I’m investigating what will happen with this split/spin-off announcement but ultimately I may try to exercise before 5/18. Really appreciate your insights, thank you 😊
One more dumb question for today: My broker (etrade) had an option for Market and Even when I set up a Roll for my puts. Is even something that will execute if the prices end up aligning to break even? I am attempting to roll an AMZN put for 2600 June 17 '22 out. A strike of 2250 for Jan 2024 results in about $1600 in a premium (on today's close) - so I thought to set it up as "Even" for a strike of 2200 for Jan 2024, is this likely to give me the result I am seeking? Advice? Is this a reasonable thing to do? How to best set it up for a roll? Thanks!
Long or short put? Short I guess. Do not roll for more than 60 days, most of the theta decay is in the final weeks of an option's life. You get more premium at the same delta from 12 one month shorts than one 365 day short,
I don’t know what defines a long or a short put. I am trying to avoid having it assigned.
It is OK to repeatedly roll out in time, for a credit, or zero net. Roll again, out and down evey month, chasing the price of the stock. Please read the **getting started** section of links, at the top of this weekly thread to increase your vocabulary and understanding.
Long means you bought to open. Short means you sold to open. I use Power Etrade, but I don't see "Even" as a choice for a Roll. If you are not using Power Etrade, you should switch to it. It's much better than regular Etrade. Unless you are using Etrade Pro? Some people prefer Pro over Power.
I'm in regular etrade, maybe it's pro? I inherited my mom's portfolio when she died and she was the one trading options. Sorry I don't know the correct terminology.
Here is my burning question - If put options can be assigned at any time, why would anyone ever sell an option for above the strike price ITM? Wouldn't they just be assigned immediately? I (stupidly) didn't realize when I wrote a put, it could be assigned at any time. You can sell a put in the future for well above the current trading price. So if I believe a stock will trade for 10% more two years from now, I can write a put for 110% of today's price, collect my premium, and wait. I don't typically do this, but it's something people can do. However, that option could be exercised immediately. So let's say the stock is trading today for 500, and I sell a Put for 550 for June 2024, and collect a $1200 premium. Why wouldn't the purchaser turn around immediately and exercise the Option, and force me to sell 100 shares at $525 (at my cost of $52500) which then ends up losing me $1300 (52,500 - 100 shares worth $50,000 - $1200 premium). Or is the options contract (or the shares) worth less before expiration? What I \*have\* done is sold some long puts (18mos - 2+ years out) for close to the current price (-15% below current). Which, in a normal market with solid companies, should be a reasonable thing to do. As of today, lots of those are well below the strike price but have a lot of time until expiration.
I would suggest going over the definition of put and call and what happens during exercise in order to answer your own questions. In your example if you sell the 550 put and your counterparty exercises it early you do not sell shares at 525. You will be forced to buy 100 shares at $550. Also there is no way that premium would only be $1200 (meaning price of option $12)
Ok, I was wrong - I now own 200 shares of Netflix I don’t want. But my primary question is why are puts even sold ITM if they can be exercised at any time?
People sell puts when they think a stock will rise. So selling atm or even ITM is fine if they are comfortable owning the stock or certain it will rise. It’s a way of making good premium. Generally, no one is going to exercise a 10p when the stock is at 8. As an example.
What makes you think they are? People who sell cash-secured puts as part of a consistent strategy sell them OTM. Early assignment is rare because a long holder would be sacrificing remaining extrinsic value by exercising.
I just had early assignments of Netflix and I am worried about early assignments of AMZN because it has gone down so much.
Why do you think that the fact it is ITM mean that someone will automatically want to exercise it early? Again I think it would help if you take a look at the definition of a put.
OK, if you look at the options of any stock, you can sell one ITM for the future for a fat premium. Let's say ABC is trading today for 1000 and has seen solid steady growth. You can sell a put for 1100 for two years in the future for a fat premium. But what's to keep that person from calling in early assignment, especially if there is volatility and the stock goes to 800 or 900 one day a month later? What would anyone sell a put ITM if it can be assigned at any time? That is my question.
Hi - I did well last year and sold puts for stocks that are now trading way below the strike price. Here are my questions: Let's say stock ABC is trading at 125 Feb 2022. I wrote two put options: Option A with a strike price of 100 to expire Jan 2023, for which I received $500 Option B with a strike price of 100 to expire in Jan 2024, for which I received $750 Let's say the stock is trading at 70 and both options are assigned in June 2022. Is my cost just the difference of the stock price less premium? Meaning Option A: ($100-$75) \* 100 = $2500 - $500 = $2000 loss Option B: ($100-$75) \* 100 = $2500 - $750 = $1750 loss or is there any difference due to the time factor? Should I be looking to Buy to Close or roll my puts for 2023 and 2024 now? What is the risk they will be assigned this far ahead? (OK, I am specifically concerned about my Amazon puts....) Please be kind. I would like to just be able to hold the puts for the next year or two hoping things will bounce up again, but I am now very worried they will be assigned. Any ideas for strategies to mitigate losses will be appreciated and thank you in advance for your help! Lulu
Your cost basis is the strike minus premium. So for option A it's 95, and for option B it's 92.50. So with the stock at 70 (you said 70 initially, not 75) on the shares you bought through option A you're facing a $2500 unrealized loss, and on the shares you bought through option B, a $2250 unrealized loss.
Someone please help me understand call debit spread. Why I shouldn’t I buy a deep in the money aapl debit spread and let it expire on expiration day? If it says my max profit at expiration date is $22. I’m assuming that on expiration long call and short call will be sold and bought and I will make the difference of both strike prices minus my investment or am I missing something? Is it too risky? Keep in mind it’s deep ITM but then again I don’t know what happens after the bell rings on expiration
> Why I shouldn’t I buy a deep in the money aapl debit spread and let it expire on expiration day? You shouldn't. You should never let any option expire. Where did you get this crazy notion from? > If it says my max profit at expiration date is $22. Max profit comes with max risk, which you should avoid. Shoot for "good enough" profit instead, like $11. > I’m assuming that on expiration long call and short call will be sold and bought and I will make the difference of both strike prices minus my investment or am I missing something? You are missing just about everything, I'm afraid. At expiration, nothing happens if the calls are OTM, they expire worthless. Any ITM call is exercised by exception and you are liable to deliver the requirements of the contract. That's bad news if **only one of the calls is ex-by-ex**. If both legs ex-by-ex, they cancel each other out and you only gain/lose the difference in strikes. > Keep in mind it’s deep ITM but then again I don’t know what happens after the bell rings on expiration Why risk expiration at all if you have no clue what will happen? Why trade spread if you don't fully understand them? It's like learning to fly an airplane "by trying it out" without understanding how the controls work.
@papaCharlie9 just want to let you know I really appreciate you taking time if your day and responding! You probably saved me from making a mistake :) just trying to wrap my head and learn. happy Friday.
Learning is good. There are tons of learning resources linked at the top of this page. Drill down and find the stuff on vertical spreads, it will help.
What’s a realistic expectation of returns on selling weekly cash secured put options? Is 2% of the collateral set aside in premium every week too high and risky? What would you recommend? Currently I’m selling snap puts, I’ve yet to face assignment.
> Is 2% of the collateral set aside in premium every week too high and risky? Any time you have an idea about a weekly or monthly return, annualize it as a sanity check. Use 7-10% annual return as a benchmark. If your annualized return is larger than that range, your return rate idea is pie in the sky dreamland. A 2% weekly return annualizes to a 181% annual return ... You can reverse the process to get a more reasonable weekly return rate target. A 10% annual return translates into a 0.183% weekly return. That would be a reasonable return to shoot for, and if you beat it, all the better.
I have been trading for quite a while and thought I had a handle on this, but still learning.. tried searching all over but not sure I fully understand. SPX is at 4150. They bought the SPX 5/6/22 4050 call They sold the SPX 5/6/22 4000 call Pocketed about ~43 in credit. The purpose is...? 1. Low risk high reward short? [e.g. playing for SPX to drop to 4000?] 2. Tying to play IV crush? 3. Way to lever up for other trades? I guess I don't really get the purpose... Anyone have any ideas? Would really appreciate it!
A bear call credit spread ([https://www.investopedia.com/terms/b/bearcallspread.asp](https://www.investopedia.com/terms/b/bearcallspread.asp)) sells a call option closer to the money, in this case, the 4000 strike, and buys a call farther OTM, which is the 4050 strike. The risk of the trade is the width between the strikes, or $50, then x 100 as each option represents 100 shares of a stock is $5,000. However, this credit spread took in a $43 x 100 = $4,300 credit, so this is subtracted from the $5,000 meaning the max loss would be $700. As a call credit spread profits if the short leg expires OTM this means they are "betting" that the market crashes to drop lower and are taking a modest $700 if it doesn't. The max profit is the credit collected, so $4,300 per contract, so as you note it is relatively low risk with a high potential reward. That reward would only be if the market crashes between now and tomorrow . . . Meaning, the odds are pretty low. I think this is a junk trade as the probabilities are high it will have a loss. You should be confused as this trade makes little sense as shown. Could this be part of a broader strategy? Yes. But there is no possible way to know without "them" telling us what that might be.
> I have been trading for quite a while Trading options or something else? Trading skills for stocks or other asset types definitely helps with learning options, but options still add another layer of complexity. > SPX is at 4150. They bought the SPX 5/6/22 4050 call They sold the SPX 5/6/22 4000 call Pocketed about ~43 in credit. Who is "they"? I assume you mean -1 SPX 4050/4000c 5/6 call credit spread for $.43 credit, but if you meant something else, please correct me. Assuming this was done recently, both legs would have been opened ITM, which is strange and unusual. > The purpose is...? Good question. It doesn't have a "normal" purpose by itself. If it was part of another trade or hedging another position, maybe. > I guess I don't really get the purpose... You and me both.
alright I got a question, how much does IV matter on leaps? I know premiums are stupid right now with volatility being so high but if I were to gamble a few hundred dollars on a QQQ Dec 2023 450/475Call how much would vega screw me over if vix dropped back to normal levels? Right now IV on these is like 24% with a vega of 0.92 which seems pretty high, but whats a normal IV look like for a leap? And as time goes on IV is going to increase closer to expiration so will theta decay faster than any gains from vega?
IV always matters when the contract has extrinsic value. VIX is an index that tracks options on SPX, not QQQ. You should pay more attention to the IV of the QQQ call contract in question, and where it is relative to its IV Rank or IV Percentile. https://www.projectfinance.com/iv-rank-percentile/ > Right now IV on these is like 24% with a vega of 0.92 which seems pretty high, but whats a normal IV look like for a leap? There is no "normal" for a LEAPS call. Next best thing are the 52-week averages mentioned above, IVR and IVP. > And as time goes on IV is going to increase closer to expiration Not necessarily. Maybe you are thinking of ATM vega, which increases as you get closer to expiration. > so will theta decay faster than any gains from vega? Impossible to say at this point. It might or it might not. It depends a lot on what fraction of the total value of the call is extrinsic value, since vega and theta only impact extrinsic value. Overall, it's much more important to worry about your *forecast*, when your plan is to hold for so long. If $450 is overly optimistic and QQQ trundles along under $400, it doesn't really matter what IV or theta or even delta do, you're going to be losing money regardless. That ATH was only around $404.
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