Tagged Questions

This tag is to be used for any question on Options, A more specific tag [put-options, call-options, options-assignment, option-exercise] should be used when appropriate.

learn more… | top users | synonyms

0
votes
0answers
35 views

Is an iron condor always preferable to doing a simple credit spread

What is the advantage of using a regular credit spread ( bull put or bear call spread ) over an iron condor? The profit in an iron condor will be at minimum be same as a simple credit spread( when one ...
1
vote
2answers
70 views

Do options always expire on third Friday of every month

The Yahoo finance link for SPY options Indicate that these options expire at close of October 31st. This is confusing because I thought options expire on the third Friday of every month. Oct 31st is ...
-2
votes
1answer
26 views

Is the delta hedging technique of any use for a retail trader

As a retail trader, does it make sense to hedge an option position by taking an opposing position in the underlying? If I buy a long call and short an equivalent number of the underlying so that the ...
-2
votes
0answers
29 views

When does an in the money option become deep in the money [closed]

When we say an option is deep in the money, at what point does it start becoming 'deep'? When the delta calculated by the black model returns a value of 1?
-1
votes
0answers
14 views

Approximate time value and implied volatility from an option price

Without using theoretical pricing models, is there a way to quickly approximate the volatility and the time premium built into an option price. The intrinsic value is easy, but what remains after ...
1
vote
3answers
29 views

does an option trading below parity always indicate an arbitrage opportunity

If an option is trading for less than parity, is it always a mispricing, waiting to be arbitraged, or are there other factors that can lead to this?
0
votes
1answer
38 views

If early exercise is a bad idea, why American option is more expensive than European [duplicate]

American options are more expensive than European options because they give the buyer the right to early exercise. But in a low interest environment, early exercise is a bad idea, for most retail ...
0
votes
1answer
30 views

When is an option a certain number of strikes in the money? e.g. “two strikes in”?

What does it mean when someone says:this option is one strike in the money or that option is 2 strikes in the money and so on and so forth? I understand in the money, at the money, and out of the ...
1
vote
1answer
119 views

Why does shorting a call option have potential for unlimited loss?

Referring to http://en.wikipedia.org/wiki/Option_(finance), for a short call: If the stock price increases over the exercise price by more than the amount of the premium, the short will lose ...
0
votes
2answers
27 views

How does delta of an option change with time if underlying price isconstant

In his book 'Option Volatility and Pricing', Sheldon Natenberg writes that if an option has a delta of 92 with 3 months to expiry; and then 2 months pass and the underlying contract does not change in ...
0
votes
0answers
31 views

Options contract calculator - for non-equities

All of my options calculators are within stock trading platforms, or readily found on the internet and require stock/index symbols. I am trading illiquid options over the counter, on an asset. I have ...
1
vote
1answer
58 views

Buying & Selling Call Options

So, I understand that if I write a call option and someone decides to exercise it before it expires, I agree to sell them the stock for the listed price on the option. I guess my confusion is, if I ...
1
vote
1answer
67 views

Profits vs. losses from stocks, options, and futures: separate, or combined?

Are stocks, options, and futures all considered part of the same basket for tax purposes? E.g., if one make some profits on stocks and losses on futures, does the IRS allow one to deduct the losses ...
1
vote
1answer
45 views

What are non-qualified stock options?

Most material out there on the internet assumes I already know some basics about stock, but I work for a US-company in the UK, while being from another EU-country. Last month I've received this e-mail ...
1
vote
1answer
67 views

Can a Covered Call be called away before the expiration date?

Scenario: If I hold 100 shares of XYZ, I can sell 1 XYZ call. Let's say the current price of XYZ is $50. What if I sell a call with strike price $45? Does that mean the underlying owner can call away ...
1
vote
1answer
95 views

What are some ways to mitigate the risks of covered calls?

When covered calls work, they seem great. However, there is a chance that the stock will tank, turning the 5% profit into a 50% loss. What are some ways of mitigating the risk of a stock dropping ...
-1
votes
2answers
73 views

Large volume options sell

In Casino Royale, the villain trades put options worth USD 100 million and loses. My question is say if he had won, would he have been able to sell the USD 100 million worth of options? Say option ...
0
votes
1answer
64 views

Risk involved in buying LEAP put and selling short term puts against it?

Let's say company A is currently trading at 100. I bought to open 10 puts for company A at 100 strike price in Jan 2015. What risk am I exposed to by selling shorter term weekly puts (strike < ...
-5
votes
1answer
82 views

A goldsmith's hedging strategy, simplified

A goldsmith has bought 100oz physical gold for his trade and payed $1300/oz. He is going to be ready to sell his jewels in 3 months from purchase. In order to hedge against falling prices of gold, he ...
7
votes
3answers
1k views

Am I understanding buying options on stock correctly

I'm just wondering if I am understanding Stock options correctly. Basically if I am watching stock XYZ. It's currently at $10 per share which I believe is low and should raise to 20 within 1 month. ...
2
votes
3answers
59 views

Why does a long/purchased call option have a long position in the option itself?

I am teaching myself some finance through a book. And I get confused by call/put options having short/long position in the options themselves or the underlying assets. For example, I understand the ...
1
vote
2answers
101 views

What is the effect of options expiration on equity pricing?

I often read on twitter that institutions will manipulate the price of stock x because it's options expiration day. By manipulating the price of the stock below the strike price, it's my understanding ...
3
votes
2answers
125 views

What happens to options after a stock split?

If an underlying stock splits, are the options just adjusted accordingly (i.e. quantity I own is multiplied, and strike price is divided)? For example, AAPL will have a 7 for 1 split soon. If I have ...
3
votes
1answer
109 views

What is a good service that will allow me to practice options trading with a pretend-money account?

I want to get a little more practice before I put my money on the line. I was using Paper Money from thinkorswim through school, but my account is bugged where the buying power will not update. The ...
3
votes
1answer
35 views

Short position with bullish outlook

I am just starting to learn about options and about puts and calls. Traditionally, I assumed that being short on a position means having a bearish outlook to the market. However, when you are an ...
0
votes
1answer
159 views

Why futures has a mark to market concept that is not present in stocks

A futures contract is traded just like a stock or an option contract. So how come a futures contract has the concept of mark to market whereas a stock or an option does not have this concept? IS it ...
0
votes
2answers
116 views

Can after-hours trading affect options pricing?

The question is targeted for symbols trading weekly options. For example, would Friday's AAPL after-hours trading affect the weekly options contract that are slated for expiration on that day? Or do ...
0
votes
2answers
52 views

Understanding option commission costs

In Interactive Brokers, they charge an option commission cost of 1.50 per contract. So this means if I sell an option, I only pay 1.50 and collect the full premium? It seems a bit too good, coming ...
3
votes
1answer
111 views

Why Gamma is highest for an option that is at the money

What is the reason that At the Money options have the highest Gamma? I understand that Gamma is the rate of change of an options price w.r.t the change of the underlying price (a.ka. the change of ...
2
votes
1answer
40 views

Probablity of touching In the money vs expiring in the money for an american option

As an options trader trading American style options, should one be considered with the probability of an option expiring in the money? Or simply the probability of the option touching the In the money ...
1
vote
1answer
132 views

How does a delta signify the probability of expiring in the money

I was watching this video on option greeks and the guy said (at 34 min): If an option has a delta of 34, it has a 34% probability of expiring in the money? Is it possible to understand it intuitively ...
3
votes
1answer
227 views

Taxes when exercising stock options in a privately held startup

Let's say I currently have the right to exercise some employee stock options (ISO) at a certain strike price. I have add these options for more than a year. I read that the AMT tax applies on the ...
3
votes
1answer
192 views

Are futures options eligible for the 60/40 tax rule?

How are options taxed when the underlying asset is a futures contract. Futures contracts in the US have a favorable tax treatment known as the 60/40 rule, where 60% of profits are taxed at the long ...
4
votes
3answers
470 views

Why would someone want to buy an option on the day of expiry

If I buy an Out of Money option and the option becomes In the money on the Friday of expiry, can I still expect to sell the option and close my position at a profit? Or is my only hope is to exercise ...
1
vote
2answers
164 views

Does a large open interest with zero volume in an option give any clues to the trader

For a particular option, if Open interest has a positive value but volume is 0, does it give any clues to the investor? There are open contracts in that option for the underlying but how come the ...
0
votes
1answer
74 views

Comparing option data between yahoo finance and CBOE for SPY options

In this snippet from an option chart from CBOE website I am guessing that the chart is showing Call Options for Apr 25, 2014 expiry for the Strike of 155. But how come there are so many calls for ...
6
votes
1answer
245 views

What is an “Options Account”?

I am filling out the form to apply for a TDAmeritrade Minor Roth IRA. I understand what's going on so far, but on the actual application I see this form (I have checked off some boxes already): ...
1
vote
1answer
56 views

Why IV and stock price are inversely related

What is the reason that Implied Volatility and Stock Price are inversely related? Is it possible to understand this qualitatively without getting into the math of the Black-Scholes formula?
1
vote
3answers
136 views

Why does an option lose time value faster as it approaches expiry

What is the reason (without getting too mathematical) that an option loses its time value in a non linear fashion (a.k.a. the time value is lost gradually at first and becomes very rapid in the days ...
1
vote
1answer
33 views

Online service that computes implied volatility

Is there a free online service that will give me the Implied Volatility of a stock or ETF based on the current option price? Or do I need to calculate myself in excel? I found this resource on IV but ...
2
votes
2answers
210 views

Does SPY option prices fluctuate as much as its underlying

In this link on SPY options the Chg column mostly shows 0.00. Does this mean option prices don't change much minute to minute unlike the underlying?
4
votes
1answer
130 views

Whats the difference between a qualified and an unqualified covered call?

I own various shares that I want to start writing covered calls on but I've heard about differences between "qualified" and "unqualified" covered calls. What's the difference? All I can find is that ...
1
vote
1answer
49 views

How are options traded on exchanges priced?

First, my knowledge is limited and I am still learning. I understand that each bank has various models to price options and that the prices vary based on these models. If this is the case, how are ...
0
votes
2answers
77 views

Get free option quotes

Is there a google or yahoo api that provides option quotes similar to the below for stock quotes? http://www.google.com/finance/getprices?i=60&p=3d&f=d,o,h,l,c,v&df=cpct&q=SPY I am ...
2
votes
2answers
92 views

What is the rationale behind brokerages establishing tiers/levels for options trading?

I'll preface this by saying that my experience in this field is limited, so bear with any abuses of terminology. I understand the rationale behind FINRA's "Know your customer" and suitability rules ...
6
votes
2answers
186 views

Am I doing the math for this covered call/long put strategy correctly? What risks do I run with this strategy?

In this trade, I write an in-the-money covered call and buy an in-the-money put (as an example) on GM, expiring in September 2014. The call premium is $10.02 with a strike of $26, and the put premium ...
1
vote
1answer
85 views

What does an options premium really mean?

I am taking a derivatives class at college, and I am getting slightly confused about how to understand options premiums. I have a couple of questions, specifically on this slide presented in class: ...
5
votes
3answers
323 views

Why would someone buy a way out-of-the-money call option that's expiring soon?

I swing trade equity options every once in a while for fun. This morning I witnessed something I do not understand at all. In the attached photo, why would someone purchase 6 contracts for .05 at ...
2
votes
1answer
175 views

Does the uptick rule apply to all stocks/ETFs and other securities, or only specific ones?

Does the uptick rule on U.S. securities apply universally across all stocks, all bonds, all futures and all options? Or is it limited to certain category of securities/instruments? Is there a ...
1
vote
1answer
150 views

Had employee options in a company that has been sold to another foreign company. What happens?

One of my parents had employee options in a company that was based in the US. Recently however, that US company had been sold off to a German company (now based in Germany). Question is, what ...