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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101 votes
6 answers
28k views

Can someone explain the GME short squeeze situation to a non-stock trader?

GameStop Corp. (GME) stock is over $300 at the time of this post. I understand the 10,000 foot view of the story only: That some Reddit folks are buying up shares to squeeze a short seller. But I don'...
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42 votes
10 answers
48k 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?
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27 votes
3 answers
37k 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 ...
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25 votes
7 answers
3k views

Better terms to use to understand Puts and Calls for options trading

I've been trying to learn a little about options trading, specially puts and calls. The term options works well for my brain because someone is buying or selling the option to buy or sell something. ...
25 votes
2 answers
6k views

How do I bet that a stock price will not move?

If I believe a stock will go up, I buy the stock. If I believe a stock will go down, I short the stock. If I believe a stock will neither go up nor down, what do I do? How do I profit from a non-...
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24 votes
4 answers
23k 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?
  • 353
21 votes
6 answers
28k 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 ...
  • 2,924
21 votes
3 answers
105k 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 ...
  • 906
20 votes
2 answers
54k 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 ...
  • 2,924
17 votes
10 answers
60k 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 ...
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16 votes
4 answers
4k views

A beginner question on call option

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 ...
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16 votes
2 answers
2k 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 Buffett buying Burlington Northern stocks and how he used puts to lower the buying price of the shares. Please, ...
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15 votes
4 answers
8k views

Who buys these significantly out-of-money options? [duplicate]

The following is the screenshot of the NIFTY 50 option chain. It is taken from the following link. Why are these people buying these significantly out-of-the-money options? In this case, it's the ...
15 votes
3 answers
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 traditional route of short-selling, when it would seem that purchasing put options is the ...
15 votes
4 answers
734 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 ...
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15 votes
1 answer
1k views

Is a Low Orbit Gamma Cannon illegal?

The recent/current GameStop situation with r/WSB vs Wall Street reminds me in some ways of the Low Orbit Ion Cannon, a tool in the 2000s that 4chan/Anonymous used to DDoS sites using the home ...
14 votes
1 answer
3k views

How is it possible that these deep ITM stock options on DISH went from 52,000 volume, 550 open bids, 550 open asks to being completely dead overnight?

I bought 16 years of historical hourly stock options data for my personal investment study to test how particular strategies may have played out over a long period of time. I'm looking at the data for ...
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14 votes
3 answers
3k views

Why are options more popular than futures among retail investors?

I am puzzled as to why options seem to be more popular than futures among retail investors. Brokerage firms seem to emphasize their options offerings more than their futures offerings. On Robinhood, ...
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13 votes
6 answers
49k 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 ...
  • 833
13 votes
5 answers
10k 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. ...
  • 131
12 votes
9 answers
4k views

Does it make sense to repeatedly increase your limit order price in small increments until your order fills?

Whenever I buy a security, I always use a Limit Order. Just to be safe, I input a price just below the Bid Price, e.g. 21.80. Why? In case the spot price dips suddenly! See below. This cheap trick ...
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12 votes
2 answers
4k views

Why do some brokers allow selling naked put options but not naked call options?

I understand that holding short positions in naked options is risky because they are not backed by cash or stock in a brokerage account. I've noticed that some brokers allow the selling of naked puts ...
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12 votes
4 answers
939 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 ...
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12 votes
1 answer
2k 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 ...
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12 votes
2 answers
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?
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12 votes
2 answers
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
2 answers
2k 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 ...
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11 votes
4 answers
9k 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 ...
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11 votes
4 answers
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 ...
  • 15.8k
10 votes
8 answers
19k 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....
  • 223
10 votes
3 answers
3k views

Company just got acquired. What does this mean for my common stock?

I own 200 common shares of a private company I worked for up until about 3 years ago. Today, I read in the news that they were acquired for a LOT of money but I don't know yet what the current stock ...
9 votes
2 answers
6k views

Deep in the money put options

I'm trying to make sense of this option: Type: put Expiry: 2021-02-05 (= this week's Friday) Bid: 580.4 Ask: 584.9 Contract size: 100 Strike: 800 The underlying's last price is $225. Buying this put ...
  • 205
9 votes
5 answers
10k 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.
  • 819
9 votes
4 answers
5k 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 ...
  • 93
9 votes
8 answers
28k 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 a call option with $300 strike price is $5.00 (1 ...
  • 207
9 votes
2 answers
2k views

Who provides the shares for exercising a put option?

I am trying to get into investing and have some questions about options. If I buy a put option (which would be an option to sell stocks as far as I understood), who will provide the stocks to sell if ...
9 votes
3 answers
8k 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 ...
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9 votes
3 answers
534 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,...
  • 1,345
9 votes
2 answers
954 views

How is options implied volatility for a stock determined?

For any given stock in Interactive Broker's TWS (and I bet with any other broker), there is an option's historical volatility and an option's implied volatility. I know the historical volatility is ...
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8 votes
2 answers
10k views

What happens to options held during a reverse stock split?

I held 1 put option for 100 shares of USO that expires on May 8. Yesterday, USO underwent an 8:1 reverse stock split. My options are now for USO1 instead of USO, but what does that mean? The strike ...
  • 185
8 votes
5 answers
12k 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?
8 votes
2 answers
5k 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 ...
  • 277
8 votes
7 answers
33k views

What does it mean to long the convexity of options?

In this Bloomberg video, Curnutt talks about volatility and the convexity of options. Specifically, he says; The spread between the VIX sitting there at 20 for a period of time and this realized vol ...
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8 votes
2 answers
410 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, ...
  • 30.2k
8 votes
3 answers
12k 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 ...
  • 5,773
8 votes
4 answers
23k 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 ...
  • 15.8k
8 votes
2 answers
5k 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
2 answers
540 views

How can I be short volatility on a stock without getting exposed to moves in the underlying?

Given the current high volatility situation I'd like to benefit by deploying my mostly conservative portfolio in making bets that are short volatility. In particular some stocks like GME and BB and ...
8 votes
1 answer
4k 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 ...
8 votes
5 answers
12k 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 ...
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