New answers tagged options
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Yes, it could be said that the probability of profit for a short Iron Condor would be the leg with the highest delta.
The probability of touch is about twice the probability of expiring ITM. Traders tend to adjust their short positions before or when the short leg goes ITM so perhaps consider this number as well.
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To sell a covered call you do not need to buy a contract instead you need to buy 100 shares of a security that tracks the S&P500.
You should consider buying one of the common S&P 500 tracking ETFs such as SPY, VOO or IVV.
To facilitate this you will have to open an option trading brokerage account or add options trading to your existing brokerage ...
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The SPDR® S&P 500 ETF Trust (symbol SPY) seeks to provide investment
results that, before expenses, correspond generally to the price and
yield performance of the S&P 500 Index.
https://us.spdrs.com/en/etf/spdr-sp-500-etf-SPY
Options are available on the SPY:
http://www.optionistics.com/quotes/stock-option-chains
The call's premium will ...
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You can buy shares of exchange traded funds and sell covered calls on those funds. Look at SPY, VOO, & IVV as some common examples.
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The video involves traders who are short the OEX stocks and are long OEX calls and it's late afternoon on expiration day (DNW most of video). McMillan's premise is that if the number of ITM calls exceeds 40,000 then they will be placing Market-on-Close orders to buy the stocks at 4 PM, pushing the OEX settlement price up, more so than other indexes. ...
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Liquidity suffers from a kind of catch-22: If there is no liquidity, people don't trade in the security. If people don't trade in the security, there is not enough liquidity. Similarly, people like to trade on the NYSE but not so much on the Chicago Exchange - why? because the liquidity is on the NYSE.
With SPY, they are a smaller version of the S&P ...
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Gamma indicates how much the delta of the option will change as the price of the underlying moves.
You could reduce the gamma of your position by buying or selling another option with similar gamma. That option would also likely have delta as well, so would need additional delta hedging.
Alternatively, you could just continue to delta hedge as the delta ...
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Quoting Obligations
Options firstly have to be listed on an exchange. Once listed, the exchange asks their Market Makers to post two-sided quotes in that option series (for example, by requiring in their rules that the market makers members have to quote in each of the listed series 60% or 75% of the time the series is open for trading). Those that do not ...
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As Joe said, you are buying it from another investor who wishes to take the other side of the trade. In the absence of that trader, the market maker is the counter party. He makes a two-sided market and is willing to buy and sell those options at all times.
Option pricing is determined by an option pricing formula. At any moment in time all but one ...
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You are buying it from another investor who wishes to take the other side of the trade. This is not really different from when the open interest is 100 , 1000, 5000. When you see that, it means there are XX contracts that exist. You're not buying/selling one of those when you "buy to open". Unless an existing contract holder wishes to sell, you are just ...
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What the other answers seem to miss is that there isn't just a vague or qualitative relation between delta and the probability of expiring in the money. Though the two are not equal in general, there is a precise limiting case in which they converge (and so in many practical cases they may be very close). This is the case where the Black-Scholes assumptions ...
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The delta is the ratio between a price change in the underlying and price change in the derivative. So a delta of .5 means that if the stock price goes up $1, the option will go up $.50. The reason that the delta and the probability of being in the money are (roughly) equal is that an increase in stock price is useful to a holder of the option only if the ...
-1
For OTM stock calls (strike $5, stock $1), its a cheap but low probability bet. Option price is not sensitive to stock price as the latter increases a bit. It will be like 0.1 or 0.2x delta.
However, when stock rises reasonably close to strike like $3/share, people think its more likely and start buying option. Delta goes to maybe 0.3-0.35x with some ...
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It is unlikely your broker will allow you to buy such a put unless you have:
(1) a long position in the stock (to cover the put),
(2) an agreement that the broker will sell the option on expiration day if the option falls in-the-money (unlikely) or
(3) that the broker may issue contrary exercise advice at expiration on your behalf, in which case the ...
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Possibly due to restrictions (or cost) of live market data, their platform may not have used the $15.57 closing price. It is common for there to be such market data artifacts with paper trading platforms.
I would follow up with think-or-swim technical support to get more insight (good luck).
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Is there a difference in the value of Delta of American and European options with the same underlying asset price, strike price, time to maturity?
Probably. The difference between American and European options primarily affects the expiration date - American have multiple expiration dates while European have one. As a result a different method is used to ...
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In most companies the power to appoint members of the board and vote on important issues lies with the shareholders. Those who hold the majority of the shares (more than 50%) effectively have total control of the company. Options however only provide a right to buy shares at a specific price at some point in the future. Until you own those shares, you do ...
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A legally enforceable contract between two parties usually consists of an offer and an acceptance of that offer. It need not necessarily be in writing, and the terms can also be defined by convention rather than words (either spoken or in writing).
In the case of over the counter (or OTC options) which are contracts between two financially sophisticated ...
1
For listed options, you can usually find the features of said option on the exchange that sells this product or perhaps on your broker's information page. For example, here are the contract specs for CME crude oil options:
https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contractSpecs_options.html?optionProductId=190#optionProductId=190
...
1
The marginal cost of processing a trade of one more contract is absolutely negligible. But so is the marginal cost of processing one more trade!
Yet somehow the cost of developing and operating the entire trading infrastructure (which is much larger than the marginal costs times the volume of trade) needs to be borne by its users. Some principle for sharing ...
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Due to listing rules, US exchange listed options may only be traded on an options exchange registered with the SEC.
All of the exchanges currently charge a fee per contract. Some (maker-taker exchanges) offer a rebate for posting in the book, which depending on your broker, may be passed on to the end-customer.
If they did not do this, but instead charged ...
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The short put on real estate represents an increased risk, for which mortgage pricing effectively includes a premium. But because the mortgage holder (lender) has already bought a long-term debt instrument, the short call on debt is a covered call. It caps the gains if rates fall, but doesn't introduce large downside. The comparison is to an ordinary (non-...
1
... if the price of the stock ST is below the exercise price of the option K?
I said that the payoff should be 0 and not K-ST when if K is larger than ST it will give us a negative payoff, and having a negative profit is not possible so the answer should be 0?
If ST is less than K then K - ST is a positive number
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Per your original question, some old timers used to describe owning options as being long a naked option. That can make a discussion confusing. Today, as noted by gamma, the phrase "naked option" is used for "unprotected short option position".
Your phrasing is not clear:
If so that would mean this spread would move slower than a long option. What that ...
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The phrase "naked option" is used for "unprotected short option position". That's not the case in the example you are given (you have a long option position).
In your case, buy an (approximately) ATM call then sell an OTM call vs. only buy the ATM call, the spread one actually has a higher chance to profit, but the max profit is limited by the width of the ...
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The OCC and Vanguard have nothing to do with the liquidity of an ETF's options. Like the stocks, option trading is an auction maket and liquidity is a function of supply and demand.
Vanguard's target audience is the investor rather than the trader and their commission structure and facilitation of option trading is intended to dissuade traders. See:
why ...
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There are a number of things in life where the commission cost increases despite only a nominal additional overhead cost as the size of the transaction increases. Brokerage is one of them.
Brokers either charge a flat fee per trade with a bump of '$X" per contract (multiple contracts) or they simple charge a fee per contract. Why? Because they can.
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Brokers monitor all of the trades at all times, not just for the first 6 months. This monitoring relates to meeting the opening margin and subsequent margin maintenance requirements.
Reg T sets forth minimum margin requirement levels. Brokers can require more restrictive amounts. Brokers can also restrict what level of risk they can provide customers as ...
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A financial option is a contract between two counterparties. It has specified terms (strike price and expiration date).
For OTC contracts, there is a written agreement. For exchange traded options, there is simply a book entry in your account when you buy or sell to open an option contract. Such contracts are standardized and guaranteed by the Options ...
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There is a document titled Characteristics and Risks of Standardized Options. It is 204 pages and not easily summarized.
The concept of an option is simple. I see Apple is trading at $200, and think it will go up, big time. I see that I can buy a $250 Jan '20 call for $20. I pay $2000 for the right, but not the obligation, to buy 100 shares at $250 ea ...
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Non accredited investors can invest in small private companies under SEC Rule 504. Stock that is bought is likely required to be held for one year or more. Also, there are severe limits to the funding amounts under the rule.
Otherwise there is an entire new set of rules for crowdfunding but the overall situation is similar to use of Rule 504 except that ...
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If I buy a $200 call option for $22 ($0.22) that expires in 3 weeks, with a current share price of $140, can I sell the option two weeks from now if the share price has reached $180?
Potentially.
The option you buy for $0.22 will steadily decrease in price towards zero while the share price is below $200. If the stock price goes up, the option price may go ...
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Prior to expiration, you can sell a long option any time that you want as long as there is a bid price. Make sure to close out the position at expiration because if the underlying is above $200, the OCC will automatically exercise it.
Unless RobinHood is proactive in closing ITM positions just prior to expiration, if assigned, you'll be subject to ...
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No, it is not the nefarious government preventing Registered Account traders from making money. They get their taxes eventually.
A registered account has legal limits to the amount in a year a person can contribute to their account. How much money they earn within the account has no limit.
If you trade naked options, there exists a condition (a bad trade) ...
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