Newbie Options Trading

[InTheShadows]

Let's say I think earnings will put the stock price at 160 on august 8th.


If I would write 2 sept 170 covered calls for $482


And on the 9th, say the stock hits 165, I could buy the 2 back for ~$2316 and pocket the $1834?


So my only real risk (other than a drop) is if it gaps up on let's say the 8th to 190 then I would "loose" 200 of my shares at $170?


So as long as there is no gap up I could theoretically buy back the calls I wrote to make a little extra?

I'm just trying to come up with a way to use options to my advantage for earnings without having to unwind my margins on stock holdings since I only have level 2 options access.

 

[sleepyhead]

What is the best website/on-line brokerage for trading options? Schwab charges me $9.99 per trade plus $0.75 per contract, which is ridiculous. If I want to buy 100 contracts then I have to pay an $85 trading fee.

Are there any (top quality, no shady websites please) options websites that for example only charge a flat fee per trade?

 

[DaveT]

What is the best website/on-line brokerage for trading options? Schwab charges me $9.99 per trade plus $0.75 per contract, which is ridiculous. If I want to buy 100 contracts then I have to pay an $85 trading fee.

Are there any (top quality, no shady websites please) options websites that for example only charge a flat fee per trade?

$85 for 100 contracts is crazy. Check out OptionsHouse.

 

[Johan]

What is the best website/on-line brokerage for trading options? Schwab charges me $9.99 per trade plus $0.75 per contract, which is ridiculous. If I want to buy 100 contracts then I have to pay an $85 trading fee.

Are there any (top quality, no shady websites please) options websites that for example only charge a flat fee per trade?

OptionsXpress.com (Charles Scwab).

 

[gym7rjm]

Let's say I think earnings will put the stock price at 160 on august 8th.
If I would write 2 sept 170 covered calls for $482
And on the 9th, say the stock hits 165, I could buy the 2 back for ~$2316 and pocket the $1834?
So my only real risk (other than a drop) is if it gaps up on let's say the 8th to 190 then I would "loose" 200 of my shares at $170?
So as long as there is no gap up I could theoretically buy back the calls I wrote to make a little extra?
I'm just trying to come up with a way to use options to my advantage for earnings without having to unwind my margins on stock holdings since I only have level 2 options access.

I'm not quite sure where you are getting the $2316 or $1834 figures from? Can you explain that?

If you sell two covered calls you will make, as of closing price today, $470 (200 x $2.35). If the price theoretically raises to $165 after earnings the call value, in turn, will go up quite a bit. You are allowed to "buy to cover" the two calls you sold in order to close your position, but doing so will probably lose you a lot of money. Using an option calculator with the same IV as today (not sure what it would be on the 9th) the call would be $13.99, so you would lose $2328.

Since you would sell the options for Sept. there is no guarantee that the shares would be called away from you if the stock went up to 190 on August 8th (it is possible, but not guaranteed). If the price was over $170 on Sept. 20th at close then the 200 shares would for sure be called away.

Generally people will sell covered calls to capture a small premium on shares they own. The risk is that the shares can be called away from you, but if you are happy to sell at that price then it is not really a negative. If the stock price drops the call price will also drop, in this circumstance some people will "buy to cover" so they can lock in their profit and eliminate the risk of having their shares called away.

 

[Acmykguy]

What is the best website/on-line brokerage for trading options? Schwab charges me $9.99 per trade plus $0.75 per contract, which is ridiculous. If I want to buy 100 contracts then I have to pay an $85 trading fee.

Are there any (top quality, no shady websites please) options websites that for example only charge a flat fee per trade?

I am with Schwab. I do not pay ANY trading commissions or fees per contract. If you can get put into an ABP (asset based profile) they charge a % of total port value. A Very economical route to look at. I have many accts with them for different types of accts. 401k Ira. Kids etc. they are all in the abp profile. The one I use for my "fun" acct which I do tsla in I pay only 20-40$ per month. I trade a lot in there too. Hope that helps.

 

[johnnydop]

I'm not quite sure where you are getting the $2316 or $1834 figures from? Can you explain that?

If you sell two covered calls you will make, as of closing price today, $470 (200 x $2.35). If the price theoretically raises to $165 after earnings the call value, in turn, will go up quite a bit. You are allowed to "buy to cover" the two calls you sold in order to close your position, but doing so will probably lose you a lot of money. Using an option calculator with the same IV as today (not sure what it would be on the 9th) the call would be $13.99, so you would lose $2328.

Since you would sell the options for Sept. there is no guarantee that the shares would be called away from you if the stock went up to 190 on August 8th (it is possible, but not guaranteed). If the price was over $170 on Sept. 20th at close then the 200 shares would for sure be called away.

Generally people will sell covered calls to capture a small premium on shares they own. The risk is that the shares can be called away from you, but if you are happy to sell at that price then it is not really a negative. If the stock price drops the call price will also drop, in this circumstance some people will "buy to cover" so they can lock in their profit and eliminate the risk of having their shares called away.

Adding to gym7rjm's point, Selling Calls yields UNLIMITED risk. If TSLA announces a killer quarter and another short squeeze ensues then your losses are limitless since the stock can theoretically go to the moon.

A way a limiting your risk would be to Sell a Call Spread. If you think TSLA will not trade passed 160 you could:

Sell the 170 strike for 2.35
Buy the 175 Strike for 1.98. You would pocket .37 and your risks are capped at the difference between the two strikes, 5 (175-170) since you were already paid .637 your Net Max loss would be 4.63 (5-.37).

Sounds like a little bit of money but its way better then potentially losing 1000s on such a small trade.

 

[sullitf]

I am with Schwab. I do not pay ANY trading commissions or fees per contract. If you can get put into an ABP (asset based profile) they charge a % of total port value. A Very economical route to look at. I have many accts with them for different types of accts. 401k Ira. Kids etc. they are all in the abp profile. The one I use for my "fun" acct which I do tsla in I pay only 20-40$ per month. I trade a lot in there too. Hope that helps.

I couldn't find much info on Schwab's ABP accounts. What did you have to do to get into this profile and are there restrictions?

 

[c041v]

I did some reading on the Greeks yesterday, and from what I've absorbed so far, a high positive delta is a fairly desirable thing if you are long/bullish. As it seems to be most directly influenced by the option being nearly ATM, I'm wondering what might a good play to make on say Aug 7 (discounting any run up we see up to that date)

I understand that the theta for an Aug 17th option will be taking quite the toll every day after the 7th, but I'm not quite sure how to evaluate what sort of impacts the other 3 Greeks may have.

In a nutshell, I'm looking for some advice on what the best option would be if I was to buy the day of earnings. I understand that depends on where I think we'll be on Aug 8th, but I'm trying to use my newfound knowledge to some sort of advantage. I'm also working with a basic grasp of reflexivity, which may be a large factor around the interpretation of a good Q2.

 

[justdoit]

Thanks for everyones input on here. I've finally jumped in and started trading some options and have been thinking why have I waited so long!

Bought some Aug 17 170's and Sept 21 185's yesterday. Yes, I know pretty risky but I might actually sell before the call or hold for the ride (small amount of money I'm okay with losing). And yes, it's addicting Sold some more shares so I can be ready to take advantage of any dip from now till the earnings call.

 

[emupilot]

I'm not very excited about having options when the earnings report comes in Wednesday, even though I expect the report to be a good one.

- The recent run-up makes me think alot of earnings report upside has been priced in already. If this is the case, the market will shrug at the report and the stock won't move much.
- The attention the stock and its upcoming earnings report have been getting makes me wonder if people are buying the stock to be in on a jump on Thursday, not so much because they want to actually own the stock. If this is the case, we'll have a downward correction not long after Thursday (or even Thursday afternoon).
- The stock might just jump up or down based on how good the report is.
- Regardless of what happens, option premiums are going to take a hit when the potential uncertainty of the report goes away.

I'm down to my core position in TSLA, but not without regrets. If we get a profit-taking drop next week I'll buy in some. If not, I'm willing to take the chance on mostly missing out on a jump up but I'll have the cash on hand to buy in after a drop if this run-up proves unsustainable.

Thanks for everyones input on here. I've finally jumped in and started trading some options and have been thinking why have I waited so long!

Bought some Aug 17 170's and Sept 21 185's yesterday. Yes, I know pretty risky but I might actually sell before the call or hold for the ride (small amount of money I'm okay with losing). And yes, it's addicting Sold some more shares so I can be ready to take advantage of any dip from now till the earnings call.

My concern with the short-term OTM options is that the premium will tank after the call. I might still get some Sep 170's or so if there's a buying opportunity early next week, but I'd probably want to unload those Thursday morning. I'll probably stick to my strategy of deep ITM options like Jan2014 110's so there won't be much premium to lose and if things don't go well on Thursday there will still be time to get my money back.

 

[DaveT]

I'm not very excited about having options when the earnings report comes in Wednesday, even though I expect the report to be a good one.

- The recent run-up makes me think alot of earnings report upside has been priced in already. If this is the case, the market will shrug at the report and the stock won't move much.
- The attention the stock and its upcoming earnings report have been getting makes me wonder if people are buying the stock to be in on a jump on Thursday, not so much because they want to actually own the stock. If this is the case, we'll have a downward correction not long after Thursday (or even Thursday afternoon).
- The stock might just jump up or down based on how good the report is.
- Regardless of what happens, option premiums are going to take a hit when the potential uncertainty of the report goes away.

I'm down to my core position in TSLA, but not without regrets. If we get a profit-taking drop next week I'll buy in some. If not, I'm willing to take the chance on mostly missing out on a jump up but I'll have the cash on hand to buy in after a drop if this run-up proves unsustainable.



My concern with the short-term OTM options is that the premium will tank after the call. I might still get some Sep 170's or so if there's a buying opportunity early next week, but I'd probably want to unload those Thursday morning. I'll probably stick to my strategy of deep ITM options like Jan2014 110's so there won't be much premium to lose and if things don't go well on Thursday there will still be time to get my money back.

I got to agree that there's definite risk holding short-term deep OTM options going into earnings, especially since option premiums are very high right now. Though most of us expect very, very good earnings, there's still the chance the the earnings aren't of blowout proportions and that the stock might not rally like most expect it to. In that case, option premiums will tank the day after earnings. Just something to think about.

BUT then again, earnings could be blowout and the stock could rally a lot... leaving some wishing we would have put more skin in the game prior to Q2 earnings.

Q2 earnings is an interesting opportunity but I think there's a lot more risk (and less reward) compared to Q1 earnings (which was historic and option premiums were very low). Personally I think the GS dip was a bigger buying opportunity with much less risk than buying now. With the GS dip, you had crashing option premiums and most of us knew Q2 earnings would be very strong. Buying at the GS dip was a no-brainer, but since the stock was crashing like crazy it left many of us scared to pull the trigger on large amounts.

 

[c041v]

I'm not very excited about having options when the earnings report comes in Wednesday, even though I expect the report to be a good one.

- The recent run-up makes me think alot of earnings report upside has been priced in already. If this is the case, the market will shrug at the report and the stock won't move much.
- The attention the stock and its upcoming earnings report have been getting makes me wonder if people are buying the stock to be in on a jump on Thursday, not so much because they want to actually own the stock. If this is the case, we'll have a downward correction not long after Thursday (or even Thursday afternoon).
- The stock might just jump up or down based on how good the report is.
- Regardless of what happens, option premiums are going to take a hit when the potential uncertainty of the report goes away.

I'm down to my core position in TSLA, but not without regrets. If we get a profit-taking drop next week I'll buy in some. If not, I'm willing to take the chance on mostly missing out on a jump up but I'll have the cash on hand to buy in after a drop if this run-up proves unsustainable.

My concern with the short-term OTM options is that the premium will tank after the call. I might still get some Sep 170's or so if there's a buying opportunity early next week, but I'd probably want to unload those Thursday morning. I'll probably stick to my strategy of deep ITM options like Jan2014 110's so there won't be much premium to lose and if things don't go well on Thursday there will still be time to get my money back.

I think those are valid concerns. Enough of us on here have had some recent experience with SPWR, SCTY & TSLA to know that the market won't always react the way it should. I'm thinking hard about this one. All of my currently held options (Aug and Sept) are way in the green, but still OTM. I'm going to be paying close attention on Wednesday and may offload some to lock in the gains. My stock will never be sold, with the time-sensitivity of options, there's simply too many factors with a lot of weight. I'll be buying some downside protection sometime on Wednesday because too many times I have been riding high on a pile of green, only to have some unexpected event take a massive bite. The stock can ride that out, options don't fare as well.

I'm trying to be aware of my own ignorance and experience level and take the gains as they come rather than be disappointed that they aren't higher. I'm fine riding into Thursday with my Aug 190's as they cost me little and have already doubled, I may pull my larger holdings before then, as they may be worthless by Thursday.

 

[Acmykguy]

I couldn't find much info on Schwab's ABP accounts. What did you have to do to get into this profile and are there restrictions?

You may have to call them and see. We have a professional money mgr and they do all the trading and investing. Schwab is just the custodian. They do that to eleminate any possible Madoff senarios. So they set up a "fun" acct in my biz name to do what I want. It works pretty nice. I also set up an acct at e trade I like that platform too

 

[Ryo]

Hoping someone can shed some light on something I'm sure has a simple explanation. I'm 100% newb when it comes to options trading so I'm glad I found this thread.

I bought some Sept 175 calls this past Tuesday when the stock was hovering around $136.50. I paid $3.31 per. In the hours that commenced I watch the stock price take a small dive to around $128 and of course my option value went down significantly. However, as we all know the stock recovered by Friday and reached $138 at close. My Sept 175's are now valued at $3.05 ... still 8% lower than what I paid. So I'm confused how my options are worth less than I paid for them despite the stock value being a bit higher now then what it was when I bought.

What am I not taking into account here?

 

[Johan]

Hoping someone can shed some light on something I'm sure has a simple explanation. I'm 100% newb when it comes to options trading so I'm glad I found this thread.

I bought some Sept 175 calls this past Tuesday when the stock was hovering around $136.50. I paid $3.31 per. In the hours that commenced I watch the stock price take a small dive to around $128 and of course my option value went down significantly. However, as we all know the stock recovered by Friday and reached $138 at close. My Sept 175's are now valued at $3.05 ... still 8% lower than what I paid. So I'm confused how my options are worth less than I paid for them despite the stock value being a bit higher now then what it was when I bought.

What am I not taking into account here?

Momentum, sentiment, emotions. Calls tend to rise a lot as a stock shoots upwards (sky is the limit right?). Then it corrects (drops) and after tha slowly climbs higher to the same price but without the momentum and emotions, hopes and dreams of fame and riches. Does this make sense?

 

[Ryo]

Momentum, sentiment, emotions. Calls tend to rise a lot as a stock shoots upwards (sky is the limit right?). Then it corrects (drops) and after tha slowly climbs higher to the same price but without the momentum and emotions, hopes and dreams of fame and riches. Does this make sense?

Yes, that suffices. Thank you.

On a better note I bought some Sept 160's the day after the GS *upgrade* caused the drop to 108. Up 103% on those. :smile:

 

[Johan]

Yes, that suffices. Thank you.

On a better note I bought some Sept 160's the day after the GS *upgrade* caused the drop to 108. Up 103% on those. :smile:

Nice! I did the same, bought Sept 170s and 180s when TSLA was trading around 110-112. I sold half of those positions (with way over 100% profit) in the last hours of trading yesterday. I want to have some cash at hand in case we see a drop monday or tuesday. Both thursday and friday were real low volume days, just this really slow and hesitant climb upwards. An ATH close is an ATH close and not to be looked down upon, it's just I have this feeling that the rise on thursday and friday as like a house of cards and all it takes is a gust of wind and we're back in the low 130's or even 120's before market close on wednesday.

I'm probably way wrong, or maybe it's a bottle of red wine talking... I'll look like a fool when we gap up to $145 monday morning. (Are you supposed to capitalize weekdays in english?).

 

[Ryo]

Nice! I did the same, bought Sept 170s and 180s when TSLA was trading around 110-112. I sold half of those positions (with way over 100% profit) in the last hours of trading yesterday. I want to have some cash at hand in case we see a drop monday or tuesday. Both thursday and friday were real low volume days, just this really slow and hesitant climb upwards. An ATH close is an ATH close and not to be looked down upon, it's just I have this feeling that the rise on thursday and friday as like a house of cards and all it takes is a gust of wind and we're back in the low 130's or even 120's before market close on wednesday.

I'm probably way wrong, or maybe it's a bottle of red wine talking... I'll look like a fool when we gap up to $145 monday morning. (Are you supposed to capitalize weekdays in english?).

You'll look like a genius if you're right and if you're wrong and it gaps up to $145 I think 'way over 100% in profit' still puts you very very far away from looking like a fool.
Yes, weekdays are capitalized in English.

 

[ggr]

(Are you supposed to capitalize weekdays in english?).

Yes, but who cares? Probably move this to the grammer (sic) thread. Also English should be capitalized.

- - - Updated - - -

Hoping someone can shed some light on something I'm sure has a simple explanation. I'm 100% newb when it comes to options trading so I'm glad I found this thread.

I bought some Sept 175 calls this past Tuesday when the stock was hovering around $136.50. I paid $3.31 per. In the hours that commenced I watch the stock price take a small dive to around $128 and of course my option value went down significantly. However, as we all know the stock recovered by Friday and reached $138 at close. My Sept 175's are now valued at $3.05 ... still 8% lower than what I paid. So I'm confused how my options are worth less than I paid for them despite the stock value being a bit higher now then what it was when I bought.

What am I not taking into account here?

Because the option is out-of-the-money, the only value it has is the "time value", which is the value assigned to the possibility of it becoming in-the-money between now and expiry. Since there is literally no way to judge this accurately, emotion, sentiment, news, randomness, whatever, can influence the current price. This is exactly what others have said, just phrased differently.