Questions tagged [options]

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.

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20
votes
3answers
87k views

What typically happens to unvested stock during an acquisition?

I work for a publicly traded company that was acquired by another publicly traded company. I also own shares of "restricted stock units" for my company. All of my shares are scheduled to vest far ...
11
votes
9answers
40k views

Why are American-style options worth more than European-style options?

Why are American-style options worth more than European-style options? I realize I can exercise American-style options anytime before the expire, but I can only exercise European-style options ...
39
votes
10answers
41k views

Options for dummies. Can you explain how puts & calls work, simply?

I never understood Puts or Calls. Could anybody explain it like I were a child?
13
votes
5answers
34k views

Does the Black-Scholes Model apply to American Style options?

After reading the Wikipedia article on the Black-Scholes model, it looks to me like it only applies to European options based on this quote: The Black–Scholes model (pronounced /ˌblæk ˈʃoʊlz/1) is ...
2
votes
2answers
970 views

Exercise an out of the money option

For listed options in NYSE,CBOE, is it possible for an option holder to exercise an option even if it is not in the money? What about early exercise for OTM American option, is it possible? Under what ...
17
votes
5answers
26k views

Please explain the relationship between dividend amount, stock price, and option value?

I consider myself a reasonably knowledgeable investor, but today was blown away by the fact that I didn't know that a stock's price is decreased by the amount of its dividend. To use a concrete ...
5
votes
2answers
2k views

What happens to an options contract during an all stock acquisition?

Let's say for the sake of the question you're given the following scenario: Company BIG is trading at $10/share Company SML is trading at $40/share BIG reaches an agreement with SML for an all stock ...
4
votes
8answers
6k views

Why would someone want to sell call options?

I'm having trouble understanding why someone would want to sell call options. For example, if the writer of a call option owned the shares and they expected the share price to fall, why wouldn't they ...
0
votes
2answers
1k views

Why hold calls until expiration?

I am reading a book on options basics. I am in a chapter on selling covered calls. The author says that buyers of calls almost always hold the calls until expiration. Why is this? Here's how I ...
24
votes
3answers
33k views

If a startup can always issue new shares, what value is there to stocks/options?

Since in most startups the board can issue more shares at will, what does it mean for an employee to own X% of the shares? When signing up, can an employee protect himself from the company printing ...
3
votes
6answers
6k views

Exercising an option without paying for the underlying

As a follow up to my other question, I would like to know whether the following is possible: I have $20,000 in my brokerage account The price of the $300 call is $5.00 (1 contract = 100 shares) I buy ...
8
votes
2answers
363 views

How to get started with options investing?

I have never taken the time to learn about or trade options, and I'd like to give it a shot. IMO, I am a reasonably sophisticated investor; I've been investing in one form or another since I was 11, ...
7
votes
4answers
3k views

At what time of day does time value fall off of a call option?

As days tick off of call options, time value decays. My question is does that happen automatically at 9:30AM at market open or does it get continuously deducted as the day ticks on?
6
votes
4answers
1k views

Buying puts before dividends get paid out

This question is a direct extension of this question, which asks if you short a stock before the dividend pays out are you guaranteed money since the price should go down? The answer states shorting a ...
5
votes
1answer
4k views

How to record a written put option in double-entry accounting?

I have been using double-entry accounting to carefully track my financial situation for a couple of years now, but I am just dabbling with stock options for the first time. I wrote a put option (sold ...
3
votes
2answers
136 views

Why certain ETFs are popular( liquid) but Options on very same ETF are not

For example on comparing EEM/VWO , SPY/IVV/VOO etc and I always wonder why some ETFs are popular but options are not. I see a question How to pick ETFs that hedge against stock market crashes? that ...
9
votes
3answers
433 views

Buying an option in the money, at the money, or out of the money

How would one make trade-offs between buying a call option a few dollars ITM (in the money), ATM (at the money), or OTM. I mean I understand the plain dollar differences / calculations on the surface,...
8
votes
2answers
4k views

What are the odds of being assigned for a long dated in-the-money call option?

If I sell a 2-year future dated call option that is slightly in the money (For example if Citi today is $5.13, I sell a call option for strike price $5.00 at Jan 2013 - today is Jan 2011), what are ...
18
votes
2answers
39k views

What happens to options if a company is acquired / bought out?

I have some out of the money options with pretty far off expiry dates (Jan 2013, for example). What happens if the underlying company is acquired before then, while I'm still holding the options? Do ...
9
votes
5answers
8k views

Is there a good options strategy that has a fairly low risk?

Is there a good options strategy that has a fairly low risk? It doesn't matter if it's complicated, has several legs, and requires margin.
10
votes
2answers
4k views

What is a stock warrant? How do warrants work?

What is a stock warrant? How do warrants work? I've been told they are similar to options; how? Then why not just call them options - what makes them different?
5
votes
3answers
824 views

Options for the intelligent but inexperienced

(Related to "Options for Dummies" and "What are some good options strategies...") I've been an investor in stocks for the past 14 years and have the confidence that I know what I'm doing. (Not that I ...
5
votes
2answers
287 views

What's the point of abandoning an in-the-money option? (i.e., not exercising it)

What's the point of abandoning an in-the-money option? (i.e., not exercising it) (Related: Exercise an out of the money option)
4
votes
1answer
2k 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 ...
24
votes
4answers
8k views

My out-of-the-money call options are near expiration and won't sell in the open market. What are my choices?

I had attempted to sell my contracts off today but was unsuccessful. They are currently OTM options and will expire tomorrow. What can I do to minimize loss and why was I unable to sell?
5
votes
1answer
1k 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 ...
3
votes
2answers
6k views

Can the purchaser of a stock call option cancel the contract?

Let's assume there's a company, XYZ, trading at $11/share today. I purchase a call option @ $15 for $0.05. Do I need to keep funds in my account to satisfy the contract? I know my counter party ...
3
votes
2answers
1k views

When you buy an option contract, how often is the market maker providing the contract (vs. another investor)?

My limited/perhaps incorrect understanding is market makers keep liquidity in options by increasing spreads in options that are less in demand, because they have to provide/make a market for them. ...
3
votes
1answer
412 views

What are Binary Options?

What are binary options, what can they be traded on and what is the process in trading them? Also, are there any brokers in Australia who offer binary options?
2
votes
1answer
78 views

Are two options ever too similar for taxes?

If I buy an option, wait 3 months, sell it, and then buy it back the next day, "wash sale" rules will apply. But, what happens when these three actions use slightly different options (e.g., strike ...
1
vote
3answers
287 views

Can I trade options purely as a leveraged product?

Following the Three Ways to Buy Options article from NASDAQ, there are supposedly three different ways to trade options after buying them: Exercise the option at maturity Exercise the option before ...
5
votes
1answer
110 views

why some brokerage does not allow uncovered (cash secured) put via online order?

In past, I had brokerage accounts with Vanguard and I have option level approved for writing uncovered put( Level 4). I could place covered call orders via the website. But to place uncovered put ( ...
4
votes
3answers
147 views

Sold a bullish vertical credit spread and was assigned early. Need information about a margin charge

Recently I was assigned on a short deep in-the-money put. It created a huge margin call. I called the broker the following day to exercise my long put to flatten out the position. He did that ...
3
votes
2answers
2k views

Why do some options trade in 5 cent increments?

SPXU appears to not be effected by TSPP, as I see bid ask prices for penny increments. I'm not sure any other definitive way to tell without actually attempting to enter an order. However, options ...
3
votes
3answers
164 views

Options and exercise

Why do people exercise call options early? If the price of the stock rises above the exercise price, the profit from selling the option would be greater than the profit from exercising the option and ...
2
votes
2answers
276 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?
2
votes
1answer
103 views

Trading options as a salaried individual Vs as a business?

Please consider the following information before answering: I have a full time job where I earn more than $90,000 per year I have been trading options for the last 2 years and have made between $10K-...
2
votes
3answers
1k views

Recommendation on Options Back Testing tool please

Can you recommend a brokerage or stand-alone (paid or free) options back testing tool. I want to be able to easily test a strategy against historical option prices. Probably for most strategies I ...
2
votes
3answers
386 views

Why is early exercise generally not recommended for an in-the-money option?

Why is it said that early exercise of a (call) option is not recommended and it is always better to sell the option instead? Is it just to avoid assignment fees? Of course, we assume that the option ...
1
vote
3answers
230 views

Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option?

Suppose I am an investor and now buy a call option. At the maturity date, if the strike price is lower than the market price of the asset, I decide to buy the underlying at the strike price because I ...
1
vote
1answer
67 views

Index Annuities and synthetic duplication with options

I read a thread on another site about some six year index annuities called Structured Investment Options (SIO). They offer a variety of combinations of an upside cap with limited downside ...
1
vote
1answer
129 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
1k views

How splits and dividends affect option prices

When a stock goes through a split or offers a dividend, do the option prices automatically change? If yes, how? A 2 for 1 split will automatically halve the option price? A dividend of 1$ will ...
1
vote
2answers
2k views

Bid-Ask at market open, which comes first? [duplicate]

I am trying to get a grasp on how the bid-ask match maker works, in particular for options as there is less volume and fewer market orders. Lets say I own an option, and place a limit sell order for $...
0
votes
1answer
109 views

Trade stocks in USA

What are the conditions for foreign citizens (and non-residents) to trade on American exchanges? I believe it's possible, but don't know the conditions...
0
votes
2answers
108 views

How can I calculate how much an option would be worth after X days if the underlying stock changed by +/- $Y?

I don't really know how to anticipate the changes in an option's price. If I have an call set to expire the following Friday at $10 above the current share price, I know in the absence of other ...
0
votes
1answer
60 views

Wash Sales - Applied to Options

Does anyone know how to account for wash sale that attached based on purchasing options where the last transaction was the purchase of an option that expired worthless? The issue is that there is no ...