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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.

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?
24
votes
4answers
7k 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?
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 ...
20
votes
3answers
85k 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 ...
18
votes
2answers
38k 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 ...
16
votes
4answers
4k views

A beginner question on call option

So I made my first options transaction. I believe that a stock that is currently trading around 25, will be in the 40s, come August - based on my research (I know the stock well, and I've invested in ...
16
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 ...
16
votes
2answers
1k views

How can put options be used to buy shares at a lower price?

How to use puts, if you are a net buyer of stocks? I read an article about Warren Buffet buying Burlington Northern stocks and how he used puts to lower the buying price of the shares. Please, ...
15
votes
4answers
655 views

Options revisited: Gold fever

In my recent question, I asked how to operate with options. Now I would like to see whether I learned anything. At this moment, Gold is rising. Fast. As I see it, in the future, the gold price has to ...
13
votes
3answers
4k views

Why do speculators short-sell a stock when they wish to go short, rather than purchase put options?

I'm still trying to figure out, why, if a speculator believes a security will go down in value they use the tradition route of short-selling, when it would seem that purchasing put options is the less ...
12
votes
4answers
687 views

Covered Call Writing - What affects the price of the options?

A little while ago, I bought $800 worth of stocks and sold about $200 worth in call options against the stock. I think it was 200 shares and 2 contracts (so my options weren't naked). That takes the ...
12
votes
5answers
5k views

Can I buy an out-of-the-money call and then sell it before it reaches the strike price?

I'm new to options trading so if this question does not make sense or is stupidly easy please bear with me. I'll try to show my thought process through an example. XYZ is currently trading at $100. ...
12
votes
5answers
33k 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 ...
12
votes
2answers
6k views

What are the tax implications of exercising options early?

Say you have the following situation: You have pre-IPO stock options Half of the options have vested, the other half will vest over the next 2 years Your strike price is S The fair market value of ...
12
votes
2answers
1k views

Are Shiller real-estate futures and options catching on with investors?

Robert Shiller introduced an approach for reducing exposure to macro risks using real-estate derivatives. He created a successful housing price index with help from Karl Case, the S&P Case-Shiller ...
11
votes
1answer
1k views

Do companies sell puts when buying back shares?

Say company X has a share price of $80. They think their shares are undervalued, and their board approved a buyback of $1 billion. Can company X use the $1 billion to sell puts at $79, with the idea ...
11
votes
4answers
2k views

Why do people rarely execute options?

Options have recently sparked my curiosity as you can short a stock with a put option and only risk your premium (as opposed to shorting in a margin account) but I still have a few questions. Why do ...
10
votes
9answers
39k 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 ...
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?
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.
9
votes
6answers
9k 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 $76....
9
votes
4answers
1k views

Why trade futures if you have options?

This article explains the difference between futures and options. It seems a futures contract is an obligation, while an option is a right (not an obligation). If this is true, why would anybody ever ...
9
votes
3answers
418 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 ...
8
votes
2answers
356 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, ...
8
votes
3answers
7k views

How does one typically exit (close out) a large, in-the-money long put option position?

I'm long some puts on a stock that has dropped a great deal. I've made $400,000 on an investment of $100,000. The question is, how do I exit? I can't really sell the puts because there isn't enough ...
8
votes
2answers
4k views

How are proceeds from writing covered calls taxed?

When I sell call options based on an underlying security that I own (covered call writing), how are the proceeds treated fro tax purposes? As ordinary income? As a short-term capital gain? Is ...
8
votes
1answer
2k views

Prospective employer is offering to 'buy me out' of my stock/options

Over a 4 year period I have received a mix of stock options AND restricted stock at a private company. The options are not in the money, but I am wanting to liquidate my restricted stock. I am not ...
7
votes
3answers
2k 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. ...
7
votes
4answers
2k 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?
7
votes
4answers
844 views

What happens to all of the options when they expire?

Most option traders don't want to actually buy or sell the underlying stock. They just use options as a trading vehicle perhaps making money on the time decay, on changes to volatility, etc. My ...
7
votes
4answers
302 views

How do I buy an option that doesn't exist yet?

For example, the latest option date on a particular stock is Jan 2014, but I want to buy an April 2014 option. According to Google Finance, none exists. Is there any way I can place any order for ...
7
votes
4answers
4k views

Why won't my retirement account let me write a “covered put”?

My retirement account (a traditional IRA) will let me write a covered call, where I sell a call option if I have the underlying securities (for instance, 100 shares of IBM). The shares are required to ...
7
votes
2answers
401 views

What are futures and how are they different from options?

As a form of investment there are contracts to buy commodities at a specific time in the future or at a specific price. How is this different from an option to buy a share?
7
votes
1answer
306 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): What ...
7
votes
3answers
9k views

Do futures have premium in the price, just as options do?

Looking at Wikipedia's the pricing of futures, I wonder if entering into a futures contract requires one to pay premium just as entering into an option contract? In other words, is the premium of a ...
7
votes
2answers
519 views

What does this statement regarding put options mean?

I read an article in the NY Times, but I don't understand what this statement means: “The 16 puts on Cisco are offered at 71 cents. We should buy 1,000,” he says to a trader sitting across the desk,...
7
votes
2answers
2k views

Do the proceeds from selling an option immediately convert to buying power in a margin account?

In a cash account, the proceeds from the sale of any security will be held until settlement; for options, this is effectively overnight. One can sell an option on one day, and then use the funds the ...
7
votes
2answers
758 views

How is money actually made from the buying or selling of options?

I understand that when you purchase an option it is a contract that allows you buy or sell a security at a specified price on or by a certain time. If you purchase a call option you have the right to ...
7
votes
4answers
353 views

How can I find stocks with very active options chains?

I frequently trade options on Tesla, which has an expansive and very active options chain, with large numbers of puts and calls available to be bought or sold at a wide range of prices expiring weekly....
7
votes
5answers
7k views

Purchasing options between the bid and ask prices, or even at the bid price or below?

For those more experienced options traders, I'm wondering if you can share what you've found in regard to purchasing near, at or possibly below the bid. For example, yesterday in a slightly rising ...
7
votes
1answer
227 views

When an in-the-money stock option expires does the broker always execute it or does its value become worthless if the owner doesn't execute it?

When an in-the-money stock option expires does the broker always execute it or does its value become worthless if the owner doesn't execute it?
7
votes
3answers
1k views

Any advantage to exercising ISO's in company that is not yet public?

I have ISO's in a private company and am trying to decide whether there is any advantage in exercising them. The price is low enough and my confidence in the company is high enough that I am ...
6
votes
4answers
1k views

Company options after leaving

I joined a company in California back in September 2007, I got a 2,000 options package. The stock price was 27 USD when I was hired. I left the company in July 2012. Options vested already but they ...
6
votes
4answers
927 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 ...
6
votes
4answers
12k 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 ...
6
votes
2answers
3k views

Can the Delta be used to calculate the option premium given a certain target?

I’m struggling for a while now with a question about options, namely 'which is the best option to buy?'. I have various books on options, but I’m not an mathematician and don’t have (yet) any ...
6
votes
6answers
2k views

Why do I get a much better price for options with a limit order than the ask price?

When I'm buying an option, I notice that if I set a limit order for in between the ask and bid - say half way, I can often get the option at that price. Why is it that way? I thought the ask price ...
6
votes
2answers
993 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 ...
6
votes
1answer
383 views

Reasons for a warrant's intrinsic value and price not adding up?

I'm looking at a specific (American-style) warrant of a company and let's say I see something like the following: Warrant Bid/Ask: 0.30$/0.35$ Strike Price: 15$ Current stock price: 16$ Expiration ...