New answers tagged options
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From the OCC:
Under the changes to the OCC By-Laws which became effective in February 2009, a cash dividend or distribution will be considered ordinary (regardless of size) if it is declared pursuant to a policy or practice of paying such dividends on a quarterly or other regular basis. Dividends paid outside such practice will be considered non-ordinary. ...
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You're buying a bearish $226/$215 put vertical for $1.08. Break even is $224.92. The risk is the debit cost and the maximum reward is the difference in strikes less the premium paid or $9.92
What you are hoping for pre expiration is that SPY drops. The sooner, the better. If it dropped to $224.92 tomorrow, you'd have about a $350 profit as compared to ...
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Well you could short Amazon's stock, either through a short sell or a put option, but both involve taking a new risk. I'm not sure that this additional risk offsets your existing risks that well.
Perhaps a better approach would be to diversify your risks, by finding an additional revenue stream.
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There are many factors that affect the price of an option. Even if the price of the underlying moves the option more out of the money (or less in the money), the price of an option can still go up if the market's expectation of the future market volatility rises enough.
It's simple when you think about it:
Lets say you own a call option that is deep out ...
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Looking around other places and taking from what D Stanely and Bob Baerker said...
S will become TMUS1 as of 4/2/20
Until the cash in lieu amount is determined, the underlying price for TMUS1 will be determined as follows:
TMUS1 = 0.10256 (TMUS)
this above is stating that every Sprint share, now known as TMUS1, will be worth whatever T-Mobile is at ...
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would I be making some absurd amount of money because the price dropped from ~$8 per share to $0.10?
No - the terms of your S option contract would be changed to create an equivalent option contract on TMUS. So you'd have a new strike price based on the new share price, and you'd have a new quantity to reflect the exchange ratio. Those two effects cancel ...
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My understanding is that vega will tell me how much my option price will change per 1% change in IV. My question now is, what does "1% change in IV" means. Is it an absolute 1% change, or a 1% change from the start point?
IV change is absolute. If it expands from .20 to .21 then it has increased by 1%
Implied volatility is very high now so trading from ...
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A short put means that you have the obligation to purchase the underlying at the strike price of the contract or $90 in your example. If assigned, your cost basis is $90 less the premium received ($2.75) or $87.25
If the purpose of selling the put is to acquire the stock at $87.25 then there's nothing to do. Either the put expires and you keep $2.75 or ...
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Options are always executed at the strike price. Since the strike of your hypothetical option is $90, that's what you'd buy the stock for. The price of the stock at the time the option was written is irrelevant.
Note that you wouldn't necessarily lose $9,000 - you'd buy the stock for $90 and could turn around and sell them for $90 (the current market price) ...
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Every option strategy has a non linear return prior to expiration because option pricing is non linear as are the resultant Greeks (theta, delta, etc.). Only the result at expiration is linear when delta approaches one or zero.
If your concern is a concentrated win/loss rate then you should be utilizing a blend of bullish and bearish strategies.
Options ...
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I agree that a buy to close is a likely explanation of what happened. The buyer was willing to forego a few cents worth of time value in order to close out a covered call and perhaps "roll" the call further out (and perhaps up as well).
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Yeah, the option premiums are the only funds required to take a long option position. The stock broker can just cash settle the option if it is in the money and if the customer didn't close the option position. Obviously, the stock broker wants the closing commissions.
But Micro E-Mini futures are also available. To qualify for futures just first gain ...
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Not fully answering your whole question, but a quick and dirty way to get the expected daily move by using the Implied Vol is to divide the implied vol by 16. (Taken from the Sheldon Natenburg book)
So an implied vol of 80% would imply that a 1 standard deviation move per day of 5%
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The broker will let you make this trade, although probably not allow you to sell the 151 call after you buy the spread. The systems are smart enough to know that the 151 call is protecting you from infinite potential losses.
You should never need to "exercise" this spread, or be forced to buy any stock. Just close out the spread on expiration day or sooner. ...
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Options can be traded for their value at any time, you do not need "American" style options to achieve that. You should NEVER exercise and option early (unless for very specific tax reasons).
Also, you do NOT need the "100 shares" of the underlying worth of cash to buy a Put or a Call option, you only need what the option costs, you never actually have to ...
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An option can be traded at any time. There are 3 main reasons why an option price will change:
Underlying price of LB stock moves
Implied volatility increase or decrease
Time decay, the non-intrinsic premium of your option will slowly decay over time and go to zero until the time of expiration when essentially the option is worth only its intrinsic value. ...
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One practical answer is that if you make the spread too narrow you are essentially turning your spread into a binary outcome. If you buy a call-spread $1 apart out of the money lets say you are risking 0.30 to win 0.70. Since the spread is so narrow it will normally either win 100% or lose 100%.
Compare that with a spread where you are buying the ATM call ...
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Options Exchanges:
BOX Exchange LLC, Boston, MA 02110
Cboe Exchange Inc., Chicago, IL 60605
Cboe BZX Options Exchange, Lenexa, KS 66214
Cboe C2 Exchange, Chicago, IL 60605
Cboe EDGX Options Exchange, Lenexa, KS 66214
MIAX Options Exchange, Princeton, NJ 08540
MIAX Emerald LLC, Princeton, NJ 08540
MIAX PEARL LLC, Princeton, NJ 08540
Nasdaq BX ...
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I could give you a detailed explanation of the non linear aspect of option pricing and how it affects the risk/reward of each spread. I could also add the effect of skew if it exists, demonstrating the analytical reasons for the "practical differences and pros and cons of these two approaches." But what would be the point of telling you how to build a ...
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AFAIC, the only reason that an investor should sell a standalone short put is to acquire shares at a better price. OK, check that box ---> you want more shares at a lower price.
What I'm considering is selling PUTs at 350, expiry in 150 days, or even 300 days. From what I've read they're most likely to expire as whoever bought them would just sell them ...
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Think about what happens if TSLA is at 250 in 150 days. Or 200. Or 150. You instantly lose $100/share. Or $150. Or $200. Yes, that can happen if you buy the stock now, but you have control of how much you can lose (by selling before you lose too much). With a short put, your only option is to buy-to-close, which puts you at the mercy of the option market.
...
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The investor thinks that stock will drop to 300 but would be willing to buy at 300 so the investor wants to begin writing put options for the option-premium income ?
That's a very good plan except for the possibility that a company with a large amount of debt could go bankrupt if a severe recession were to occur. Then one technique for taking a position in ...
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You can make money buying or selling options if the stock cooperates. Timing is everything.
Avoid selling options until you really understand options and you are an experienced investor/trader.
As for LB, it normally has an implied volatility of about 50%. At that level, you 4/21 $5 put would have a theoretical value of ZERO. Because the market has ...
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The short answer is yes. You can make a profit, on puts or calls, when the options are still out of the money. In order to do so, the difference between what you paid/sold the option for in the first transaction has to be greater than what you can sell/pay for the closing position and commissions need to be considered and possibly tax liability.
When ...
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For bearish call spreads, the potential profit is the credit received and the risk is the difference in strikes less the premium received. The break even point is the short strike plus the premium received.
Here's the problem; You sold the $136 call for a credit of $13.75 and you bought the $139 call for a debit of $13.85.
You PAID 10 cents for this ...
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Your question isn't clear. Are you referring to option contracts that are for less than 100 shares?
Traditional options are for 100 shares. A number of years ago the CBOE tried a pilot program with option contracts on 10 shares for about a dozen or so high priced stocks and indices (Mini Contracts). It didn't catch on. I don't know if there are any ...
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The last sentence is correct but there are some errors in the rest of the explanation.
A long put gives you the right to put the stock to someone else, meaning sell it at the strike price. This is a $10 put so if SNAP goes to $1, you would exercise the put, sell the stock for $10 and then buy it on the market for $1, netting $9 less whatever you paid for ...
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In the US, equity and ETF options are American Style exercise and they can be exercised at any time.
Most index options are European Style which means that they can only be exercised at expiration and they are cash settled.
SPX options are European Style index options. If you prefer American Style, look at SPY options.
Normally, the spreads on near-the-...
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At the end of the trading day, traders pull their offers and the bid and ask price for securities widens. With options, this often goes to the extreme and the bid price drops to zero. This is a common every day occurrence.
However, trading in RCL was indeed halted yesterday morning between 9:54:05 AM to 09:59:26 so option trading was also halted at that ...
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First, a small terminology correction. You don't buy a naked call. That's an outdated form of description from decades ago. A naked call is a short call that is not covered by long stock or a long call.
Your broker allows such trades because the margin requirement (the risk) is the difference in strikes less the premium received.
My broker ...
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From my understanding of Robinhood's options knowledge center, without the ability to exercise the option (i.e. I don't hold 100 shares nor have enough cash to buy 100), I cannot write contracts. Instead, I am only able to buy already written contracts, and I can only sell my contracts back to the market. In fact, Robinhood states that on expiration, the ...
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