Newbie Options Trading

[Larken]

Hi,

I've only read the first 80 posts so far. Great thread! Thanks everyone!

I just got word that Vanguard won't approve me to buy calls and puts:frown:.

Can anyone recommend a broker who is likely to approve me to buy calls and puts, has good or excellent customer service, good online options trading tools and reasonable commissions (I said reasonable commissions because I won't be trading a high volume but I don't want to pay through the nose either :wink.

I used to have an account with Schwab with those privileges and we are insured with USAA.

I use Interactive Brokers and I'm very happy with them. I started using them due to their extremely low fees (around 70 cents per options contract),as the first platform I was using was killing my ROI due to their $10+ per trade fee. The IB platform is usually regarded to be for experienced traders but I started using it with very little experience of option trading and I learned as I went along.
Most people will advise you against using options due to its high risk and if you do they tell you to read X number of books on the subject or only trade with play money before starting with real money. That is all good advice but I say if you want to learn faster then start with real money as nothing makes it more serious and personal when your own bacon is on the line. The key thing though is that you must be able to afford the initial deposit, you must be willing to loose money and regard it as a university tuition fee.

 

[CHGolferJim]

Okay, I have an idea that I'm curious to see if anyone can shoot holes in:

- currently own x shares of TSLA in a Roth IRA (non-taxable, no transaction costs per management fee structure)
- plan to hold at least 50% of shares long-term if TSLA continues expected progress towards $700 AAPL target
- currently $30/share positive vs. weighted average cost basis
- can sell 58-day $275 covered calls for ~$12.50 (~25% annualized return)
- I don't care if they get called, because I can use proceeds to repurchase same number of shares to maintain overall exposure (same 3-day settlement period for calls and repurchase)
- risks: only one I can think of is lost appreciation from shares trading above $275 when I discover they were called (can ameliorate most of this risk by entering limit order at $275 and expect ordinary TSLA fluctuation to hit that soon after shares are called).

Any other risks or problems with approach?

 

[ggr]

A couple of weeks ago I wrote a few contracts for Oct 2 $247.50 puts, and got paid $7 for the privilege. Yesterday the stock closed at $247.57, so the puts were out of the money. This morning I expected to see the notice that they had all expired, but instead I was told that two of the contracts had been assigned, so I bought 200 shares! Now, I don't have any problem with this, because I'm still in the green and had the resources for the purchase, but I don't understand quite what must have happened. If the contracts ran through the close of the market, they would have been valueless to the purchaser, so someone must have exercised them before the market closed. But then I would have thought that the assignment would also have happened before the market closed? Not the following day. Maybe I'm just giving more credit to the speed of the market makers than is deserved.

Anyone more experienced with writing options contracts able to clarify? Thanks in advance.

 

[MikeC]

A couple of weeks ago I wrote a few contracts for Oct 2 $247.50 puts, and got paid $7 for the privilege. Yesterday the stock closed at $247.57, so the puts were out of the money. This morning I expected to see the notice that they had all expired, but instead I was told that two of the contracts had been assigned, so I bought 200 shares! Now, I don't have any problem with this, because I'm still in the green and had the resources for the purchase, but I don't understand quite what must have happened. If the contracts ran through the close of the market, they would have been valueless to the purchaser, so someone must have exercised them before the market closed. But then I would have thought that the assignment would also have happened before the market closed? Not the following day. Maybe I'm just giving more credit to the speed of the market makers than is deserved.

Anyone more experienced with writing options contracts able to clarify? Thanks in advance.

No idea why that would happen, but just want to say nice job on picking your strike price.

 

[ggr]

No idea why that would happen, but just want to say nice job on picking your strike price.

Pure luck I'm afraid.

 

[Blip]

Could be tax related. Also note that the options are settled after regularitet market close, so after-hour price change the otm to itm. Google After-Hours Risk. Note: I'm not an expert... (Automatic Exercise, After-Hours Risk, and Other Options Expiration Issues - NASDAQ.com)

 

[allz]

Anyone know about how to do a DayTrades (for Options) without having 25+k$ in account?
I read only OptionsExpress.com has this possibility, something to do with not having it as a Margin account or something.

 

[MitchJi]

I think that TD Ameritrade will let you do what you want.

 

[sub]

I use TD Ameritrade/think or swim and minimum is 20k (I think) for margin acct for day trading.

 

[hockeythug]

Anyone know about how to do a DayTrades (for Options) without having 25+k$ in account?
I read only OptionsExpress.com has this possibility, something to do with not having it as a Margin account or something.

I use them. I think they still follow the same freeriding rules for non-margin accounts.

 

[allz]

Forgot to mention, im from Europe.
Also - someone pointed me to this: https://images.optionsxpress.com/static/pdf/day_trading_disclosure.pdf from here it is that I CAN day trade, just needs to be checked after a trade that other capital is available and prior to funds being cleared.

 

[Johan]

Forgot to mention, im from Europe.
Also - someone pointed me to this: https://images.optionsxpress.com/static/pdf/day_trading_disclosure.pdf from here it is that I CAN day trade, just needs to be checked after a trade that other capital is available and prior to funds being cleared.

And you'll often have to get on their online chat assist and ask them to reset your intraday purchasing power if you trade multiples of your account balance in one day. They'll do it, but warn you about their policy regarding trading with still unsettled funds.

 

[allz]

I see - so - in the end - it is better to get the 25k on acc. so it doesnt bother me anymore.

 

[Cattledog]

What do people think - other than it would have been great to ask this question three days ago...If you had some fun money to go for big risk/big reward, would you get in some calls now, or would it be possible to time it so you buy 12/31 timing a big announcement that they've met production for Q4, hoping for a sideways ride and more pent up energy for a really big upside?

 

[Discoducky]

I'm strongly considering the $125 call for SCTY Jan 20th 2017 at $0.40.

I bought the stock, I have bonds so this seems like a small bet.

Anyone else buying longer-term calls for SCTY?

 

[mmccord]

i picked up some apr16 60s today. Not a ton though. Will probably be averaging into them because i think we are due another pullback.

I'm up 98% on 325 shares i bought in November @ $29, so I'm pretty happy about that...

 

[ev-enthusiast]

I am currently reading the advanced options trading thread to learn more about options. As I am trading in Germany, it looks like my options work a bit differently compared to e.g. the states. As far as I can see I am only able to buy calls or puts in Germany, I am not able to sell these. At options expiration I never have to buy stock, the options either expire worthless or in case these are in the money I get paid the premium in Euro.

My first question is about a syn long:
Is such a position used to simulate a long stock position?
I have the impression that a syn long is saving the investor some money because the put and call options required for a syn long are usually cheaper compared to simply purchasing stock?

 

[MikeC]

I am currently reading the advanced options trading thread to learn more about options. As I am trading in Germany, it looks like my options work a bit differently compared to e.g. the states. As far as I can see I am only able to buy calls or puts in Germany, I am not able to sell these. At options expiration I never have to buy stock, the options either expire worthless or in case these are in the money I get paid the premium in Euro.

My first question is about a syn long:
Is such a position used to simulate a long stock position?
I have the impression that a syn long is saving the investor some money because the put and call options required for a syn long are usually cheaper compared to simply purchasing stock?

Yes, it simulates a long stock position. The reason it doesn't usually save money (otherwise, it would be a no-brainer compared to buying shares) is that when you sell the put, you need to have the amount of money set aside in case the put is exercised. E.g., if you sell a $200 put, you need to have $20,000 on hold, which is the amount that buying those shares would cost you anyway. You can use margin for the $20k but you could have also used that same margin to just buy the shares outright.

I'm not sure if this is different in Europe or if there is a more advanced strategy where a synthetic long does have benefits.

Also, it's possible you can't sell calls or puts because your options level approval is too low, in which case you could apply for a higher approval level from your brokerage.

 

[CHGolferJim]

I have just started reading this massive thread #goodlucktome, but have a question in the meantime.

I own _00 shares bought in tranches since 8/14 (slightly under water overall) and have been selling covered calls for the past 18 months, at least until prices went down so low with the recent share swoon. Nothing especially clever, but I have netted 10% of my long investment. Thought I had an airtight strategy, but it has suddenly dawned on me that I may have misunderstood the risks I was taking.

My question is "What percentage of in the money covered calls are exercised once the delta from current market price reaches $x or x%, vs. being held until the expiration date?"

After witnessing one of my covered calls go in the money several weeks before expiration, and then decline and never be exercised, I'm wondering if the risk of selling covered calls is higher than I realized. I had been thinking that the call would almost definitely be exercised once the market price exceeded the exercise price by ~$x or x%, but if usually held until expiration during a market updraft, there's a possibility the delta could be $10 or $15 (an amount exceeding the covered call premium), and I couldn't recover that delta by repurchasing at a lower price after exercise and market fluctuation.

Can someone please help me? :crying:

 

[The Blue Owl]

I have just started reading this massive thread #goodlucktome, but have a question in the meantime.

I own _00 shares bought in tranches since 8/14 (slightly under water overall) and have been selling covered calls for the past 18 months, at least until prices went down so low with the recent share swoon. Nothing especially clever, but I have netted 10% of my long investment. Thought I had an airtight strategy, but it has suddenly dawned on me that I may have misunderstood the risks I was taking.

My question is "What percentage of in the money covered calls are exercised once the delta from current market price reaches $x or x%, vs. being held until the expiration date?"

After witnessing one of my covered calls go in the money several weeks before expiration, and then decline and never be exercised, I'm wondering if the risk of selling covered calls is higher than I realized. I had been thinking that the call would almost definitely be exercised once the market price exceeded the exercise price by ~$x or x%, but if usually held until expiration during a market updraft, there's a possibility the delta could be $10 or $15 (an amount exceeding the covered call premium), and I couldn't recover a small delta by repurchasing at a lower price after exercise and market fluctuation.

Can an someone please help me? :crying:

There is no particular threshold that would trigger the automatic exercising of the calls. The broker doesn't care, since your calls are secured by your shares. There is a small probability somebody on the other side of the trade may exercise their calls, but that wouldn't make much sense since they would always net more profit by simply selling the calls directly (due to the time premium), so it happens only rarely. The only situation I can imagine is if the call holder wants to lock in his profits, but the calls aren't liquid (rarely the case with TSLA, but could happen for deep in the money strikes).

The risk you're taking is two-fold: First, the stock may run away from you and the calls may expire in the money. As you pointed out, you give up any upside beyond the strike price plus the call premium. Second,the stock may tank and never recover (think GTAT). Low risk with TSLA, but organic waste happens.

Covered calls are good when you want to own the stock at any price (meaning lower price), and you don't expect it to appreciate drastically before expiry. With catalysts on the horizon, it's maybe better to stay out. When it settles again (or enters a period of slow decline), you have a better chance to come out ahead.