58
Out-of-the-money options close to expiration often have no bids. If no one is willing to pay even $0.01 for them, you will have to let them expire worthless. Your loss essentially already happened when the underlying failed to surpass your strike; you would at best be fighting to salvage pennies now.
23
Short sales have a lower direct cost (i.e., the price of the put option), and so also a higher potential profit, but a much higher risk. Unhedged short sales are incredibly risky, of course, but they're typically hedged in one fashion or another. Put options are fairly expensive, so they won't necessarily be profitable unless the stock depreciates ...
20
Stock options mean you have the opportunity to purchase the stock at a given price. They don't mean you actually own company stock, even after they vest, unless you exercise your options which involves paying the strike price specified by the option (though it's possible to do a cashless exercise with options that are above water). It's very unlikely that ...
14
Is the price you are quoting the bid, ask, or last?
If this was the last, then the information could be days old. The bid or ask may be up to date pricing but the other side may have no interest at that price.
This kind of thing often occurs when prices are drastically out of or in the money; or very close to expiration.
14
You've gotten some good advice answering your questions but not much in regard to managing your position.
You face two obstacles, time decay and share price reversal. Time decay is easy. Between now and August expiration, you are going to lose 80 cents per $27 contract unless share price moves up. On an expiration basis, share price must be $27.80 for ...
13
I suggest you look at many stocks' price history, especially around earnings announcements. It's certainly a gamble. But an 8 to 10% move on a surprise earning announcement isn't unheard of. If you look at the current price, the strike price, and the return that you'd get for just exceeding the strike by one dollar, you'll find in some cases a 20 to 1 return....
13
You appear to be thinking of option writers as if they were individuals with small, nondiversified, holdings and a particular view on what the underlying is going to do. This is not the best way to think about them.
Option writers are typically large institutions with large portfolios and that provide services in all sorts of different areas. At the same ...
13
Options generally have an expiration date. Your original option grant contract document should have outlined when your options would ultimately expire. I have not seen options that last forever.
Moreover, employee stock options in particular are also likely to have other conditions that limit exercise after you quit or are terminated; for instance, one ...
13
In the early 90's, the SEC issued a ruling that allowed companies to sell puts on their stock for the purpose of buybacks.
The short puts don't necessarily assure the company that they will acquire shares because if share price rises, the puts will expire worthless, generating some income, and the buyback isn't accomplished.
OTOH, if share price falls, ...
12
You are likely making an assumption that the "Short call" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or "write") a call option on a stock, your position can either be:
covered, which ...
12
I put in the details of your scenario. I adjusted the volatility to get the price near what you showed.
Next, I dropped the time to 2 weeks. Look what happened -
The stock, still out of the money, but the call jumped to $1.39. If the stock doesn't keep rising, the price of the calls drops each day and expires worthless. But there's a chance to sell at a ...
12
As an analogy, consider people betting on an (American) football game between Team A and Team B. Let's make buying the option analogous to betting on Team A. Then selling it is analogous to betting against Team A. The sale price of the option is analogous to the odds a bookie will offer. The expiration date is analogous to the end of the game. Being OTM is ...
11
This is because volatility is cumulative and with less time there is less cumulative volatility.
The time value and option value are tied to the value of the underlying. The value of the underlying (stock) is quite influenced by volatility, the possible price movement in a given span of time. Thirty days of volatility has a much broader spread of values ...
11
No.
In good years, the income seems free. In a down year, particularly a bad one, the investor will be subject to large losses that will prove the strategy a bad one.
On the other hand, one often hears of the strategy of selling puts on stock you would like to own. If the stock rises, you keep the premium, if it drops, you own it at a bit of a discount ...
11
Should I sell the call ?
Your current downside risk is if the stock begins to fall, the value of your options will fall as well. There's no risk of you losing any more cash since you already paid for the options and they can't go below zero.
You could lock in your gains by selling the call. The risk at that point is that you miss out on any gains based ...
11
You can always sell your calls at the market price (the bid). If the trade did not execute then you are asking for a price greater than the market price.
If the bid is zero then it is highly unlikely that anyone is going to take them off your hands even for mere pennies and you can chalk this one up as a total loss.
The opportunity to minimize your ...
10
A lot may depend on the nature of a buyout, sometimes it's is for stock and cash, sometimes just stock, or in the case of this google deal, all cash. Since that deal was used, we'll discuss what happens in a cash buyout.
If the stock price goes high enough before the buyout date to put you in the money, pull the trigger before the settlement date (in some ...
10
Options are a derivative product, and in this case, derive their value from an underlying security, a traded stock. An option gives you the right, but not the obligation, to buy a stock at a given price (the strike price) by a given time (the expiration date.) What I just described is a call option. The opposite instrument is a put, giving you the right, but ...
10
Options have legitimate uses as a way of hedging a bet, but in the hands of anyone but an expert they're gambling, not investing. They are EXTREMELY volatile compared to normal stocks, and are one of the best ways to lose your shirt in the stock market yet invented.
How options actually work is that you're negotiating a promise that, at some future date or ...
10
Here is a quick and dirty explanation of options. In a nutshell, you pay a certain amount to buy a contract that gives you the right, but not the obligation, to buy or sell a stock at a predetermined price at some date in the future.
They come in a few flavors:
Call Option - You can buy a stock at a predetermined price (higher than the current price) ...
10
If the buyer exercises your option, you will have to give him the stock. If you already own the stock, the worst that can happen is you have to give him your stock, thus losing the money you spend to buy it. So the most you can lose is what you already spent to buy the stock (minus the price the buyer paid for your option).
If you don't own the stock, you ...
10
In theory, no. In practise, occasionally.
In theory if the market is working correctly the price of a matched put and call in the same stock should align such that there is no profit in buying both. The same goes for any other set of options which are trying to cover all possible outcomes (or indeed for trying to bet on all the runners in a horse race!).
...
10
Options that are not worth exercising just expire. Options that are worth exercising are typically exercised automatically as they expire, resulting in a transfer of stock between the entity that issued the option and the entity that holds it. OCC options automatically exercise when they expire if the value of the option exceeds the transaction cost for the ...
10
The time value decay is theoretically constant. In reality, it is driven by supply and demand, just like everything else in the market.
For instance, if a big earnings announcement is coming out after the close for the day, you may see little or no time decay in the price of the options during the day before.
Also, while in theory options have a set ...
10
I do this often with shares that I own - mostly as a learning/experience-building exercise, since I don't own enough individual stocks to make me rich (and don't risk enough to make me broke).
Suppose I own 1,000 shares of X. I don't expect my shares to go down, but I want to be compensated in case they do go down. Sure, I could put in a stop-loss order, ...
10
The reported SPY close of $292.45 occurred around 4:00, not 4:15. From what I see, SPY rose in after-hours trading and reached $292.84 at 4:15. This is nearly in line with the price of the option, which can trade until 4:15.
9
Companies normally do not give you X% of shares, but in effect give you a fixed "N" number of shares. The "N" may translate initially to X%, but this can go down.
If say we began with 100 shares, A holding 50 shares and B holding 50 shares. As the startup grows, there is need for more money. Create 50 more shares and sell it at an arranged price to investor ...
9
If you buy a call, that's because you expect that the stock will go up. If it does not go up, then forget about buying more calls as your initial idea seems to be wrong. And I don't think that buying a put to make up for the loss will work either, the only thing that is sure is that you will pay another premium (on a stock that could stay where it is).
Even ...
9
First lets understand what convexity means:
Convexity -
convexity refers to non-linearities in a financial model. In other
words, if the price of an underlying variable changes, the price of an
output does not change linearly, but depends on the second derivative
(or, loosely speaking, higher-order terms) of the modeling function.
Geometrically, ...
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