Newbie Options Trading

[gym7rjm]

So I found out early this week that Scottrade doesn't allow selling puts, at least for me. Some reading on the net tells me that they don't allow it to most if not all of their clients? Cost me some good money this week when TSLA dropped to Low 160's, I was confident it was not going lower. My plan was to sell puts and buy some calls, both would have paid off nicely at this point. As I went to execute the transaction I was given the denial, wasn't aware of this issue until then. How much of a hassle to move to another broker? I know I won't be able to trade for a while, how long does it usually take? Recommendations?

My main account is with Scottrade as well. It was good while I was learning to invest, but now I know way more about option strategies so I've out grown Scottrade. I've spoken to several Scottrade customer service people and they all say that in the near future they are planning to implement more option capabilities, however, they don't have a specific date.

I recently opened an OptionsHouse account and transferred some money there to try them out for a bit. If I find that I like their services then I will probably start to switch my whole account over. You can use an ACAT form to transfer assets over. The only problem is that it takes 10 business days for the transfers to happen which is nearly impossible to wait in this climate. For this reason, I will transfer my shares first and then slowly transfer the rest of my money over as I cash out of my options over time.

If you end up doing a lot of options, Scottrade really isn't that great because the fees are pretty steep.

 

[smorgasbord]

Advice for buying calls?

I posted some Guidelines for Writing Puts, which I follow religiously and have done well. That's on the Advanced Option thread since selling Puts is Level 3 or higher, not suitable for newbies. The guidelines for Puts give you numbers for price protection, potential profit if not called, etc.

However, there are times when I'd rather buy calls (or buy calls in addition to selling puts). What guidelines are you-all using to decide which Calls to sell? For instance, on the recent dip, I sold some Jan $160 Puts. What Calls might have purchased instead, and why?

What calculations do you perform before buying a particular call? How do you determine strike? Is it some percentage above current price (With puts I only sell if below 7% of current price)? I know that time period varies based on what news you expect on the stock, but in general do you prefer ITM or OTM calls, and why?

 

[ckessel]

I posted some Guidelines for Writing Puts, which I follow religiously and have done well. That's on the Advanced Option thread since selling Puts is Level 3 or higher, not suitable for newbies.

Newb question. How does the broker decide what you can sell for a put? I have level 2, but it'll let me sell 1 put option, but not more than that. I've been reading through the TD Ameritrade docs for about 30 minutes and I still can't figure out why. I have zero cash in my account and I'm maybe 20% into my available margin (my TSLA shares dwarf my margin bought options right now).

The idea of selling some puts sounds good, but I'm not sure how to figure out what the impact/requirements are on my account.

 

[sub]

My main account is with Scottrade as well. It was good while I was learning to invest, but now I know way more about option strategies so I've out grown Scottrade. I've spoken to several Scottrade customer service people and they all say that in the near future they are planning to implement more option capabilities, however, they don't have a specific date.

I recently opened an OptionsHouse account and transferred some money there to try them out for a bit. If I find that I like their services then I will probably start to switch my whole account over. You can use an ACAT form to transfer assets over. The only problem is that it takes 10 business days for the transfers to happen which is nearly impossible to wait in this climate. For this reason, I will transfer my shares first and then slowly transfer the rest of my money over as I cash out of my options over time.

If you end up doing a lot of options, Scottrade really isn't that great because the fees are pretty steep.

Thanks. I opened up a tradeking account maybe a month ago to look at their system but had not decided what to do. I know I need to leave Scottrade now, but not being able to trade for 7-10 days isn't good. I don't plan to do a large number of options, but I want to have all capabilities so when an opportunity like this past week arises I can take advantage of it. I think IB has some of the lowest fees as well and it seems like a lot of people on the short term thread use them.

 

[InTheShadows]

Newb question. How does the broker decide what you can sell for a put? I have level 2, but it'll let me sell 1 put option, but not more than that. I've been reading through the TD Ameritrade docs for about 30 minutes and I still can't figure out why. I have zero cash in my account and I'm maybe 20% into my available margin (my TSLA shares dwarf my margin bought options right now).

The idea of selling some puts sounds good, but I'm not sure how to figure out what the impact/requirements are on my account.

I'm a noob myself. Here is my understanding. You are not buying options on margin. You are using the liquid amount from your common stock and that is getting replaced with margin funds.

Also so you can probably sell a out because you have it covered with either common stock or some other long option position. Selling a put though is a long position so I am not sure exactly what is happening there.

 

[ckessel]

I'm a noob myself. Here is my understanding. You are not buying options on margin. You are using the liquid amount from your common stock and that is getting replaced with margin funds.

Also so you can probably sell a out because you have it covered with either common stock or some other long option position. Selling a put though is a long position so I am not sure exactly what is happening there.

Apparently selling a put counts against my options margin. Since it was the weekend and nothing would sell, I created a few test trades and determined that the put counted against my margin based on what the strike price would be for the stock in question (so, 100 shares of TSLA hits my margin for ~18,000). I had just enough margin to cover one put. I suppose that makes sense, I'm on the hook for that and my only pure stock position is TSLA itself.

 

[InTheShadows]

Apparently selling a put counts against my options margin. Since it was the weekend and nothing would sell, I created a few test trades and determined that the put counted against my margin based on what the strike price would be for the stock in question (so, 100 shares of TSLA hits my margin for ~18,000). I had just enough margin to cover one put. I suppose that makes sense, I'm on the hook for that and my only pure stock position is TSLA itself.

If you have level two options then your margin is actually effected by your common shares. If you were to sell all your common shares and invest 100% of your cash in buying calls you would see that your buying power would go to zero. The only reason you can have zero cash and still buy options is because you are using the liquidity of your common shares to fund their purchase.

 

[ckessel]

If you have level two options then your margin is actually effected by your common shares. If you were to sell all your common shares and invest 100% of your cash in buying calls you would see that your buying power would go to zero. The only reason you can have zero cash and still buy options is because you are using the liquidity of your common shares to fund their purchase.

Yea, I sold some stock today and replaced with LEAPS, but there wasn't much change in my actual buying power. It did greatly reduce how much margin I'm using, but my buying power on margin also dropped so my net buying power is about the same.

 

[pz1975]

Why is the options expiration date this week (Oct. 19) on a Saturday? Does that mean the stock market in open on Oct. 10 too? If not, why not just have the expiration date on the 18th since the option values won't change without the stock changing price?

Thanks.

 

[Mario Kadastik]

Options always expire on Saturdays as they are exercised after market close and after hours finish. The last day they trade is the last market open day before they expire i.e. friday unless there's a holiday. Always remember to check when markets are closed due to holidays, that can nicely **** up your strategy

 

[pz1975]

Sorry but I don't know where you are getting that from.

Recent/near future options expiration dates:

Oct. 4- Friday
Oct. 11 - Friday
Oct. 19 - Saturday
Oct. 25 - Friday
Nov. 8 - Friday
Nov. 16 - Saturday

I'm trying to figure out why the odd one is a Saturday and how this would affect trading. It looks like the "long-term" dates (ie. monthly options dates set months before) are Saturdays while newer dates (set recently) are Fridays. Why?

For the weeks with the Saturday expiration date, would the options prices move at all between Friday closing bell and when they technically expire on a Saturday?

 

[Mario Kadastik]

Right, the weeklys are Fridays, but monthlys are Saturdays. Not quite sure why, but it makes no big difference the trading always ends for options on Friday closing bell. After that they either expire or get executed.

 

[Discoducky]

So I bought my first option as a put which expired on Oct 11th worthless. Bought 1 put @155 for 2.04 on ~9/16. I got my $214 worth as I watched the whole process and how it fluctuated through all the turmoil and most importantly how it ended up being worthless and expired at the end.

I wanted to see how it felt to bet against TSLA (in a very small way) and I actually could have made money for a few days, but felt more enlightened just letting it run its course.

Now, after experiencing the put option I'm not sold on playing with options in general. I find that if I didn't have a day job it might be worthwhile, but I won't be doing more of it in the short term.

 

[aznt1217]

Curious to know how would one play Nov 200 calls. I was debating to sell after earnings but does that even make sense or does it depend on the earnings release date? I am hoping it is the first week of November so there's less time decay.

 

[Cal1]

So I bought my first option as a put which expired on Oct 11th worthless. Bought 1 put @155 for 2.04 on ~9/16. I got my $214 worth as I watched the whole process and how it fluctuated through all the turmoil and most importantly how it ended up being worthless and expired at the end.

I wanted to see how it felt to bet against TSLA (in a very small way) and I actually could have made money for a few days, but felt more enlightened just letting it run its course.

Now, after experiencing the put option I'm not sold on playing with options in general. I find that if I didn't have a day job it might be worthwhile, but I won't be doing more of it in the short term.

Myth #1: Selling options is the only way to make money since 90% of options expire worthless.
Fact: Contrary to what many think, the vast majority of options do not expire worthless. The facts are as follows: approximately 10% of options are exercised, from 55% to 60% of option positions are closed prior to expiration, and about 30% to 35% of options expire worthless. Note that 90% of options go unexercised, which is very different than expiring worthless. It should also be noted that this says nothing about profitability. Option positions closed prior to expiration may be profitable or unprofitable. Options that expire worthless may not be unprofitable if they were part of a strategy that involved other securities such as covered call writing.

This is from the CBOE's website. So don't feel bad. It's really a game of duck, duck, goose.

 

[slavi]

This might've been answered before, it's a long thread and I couldn't find it with a quick search.

Do options have any pressure on the stock price? If I buy OTM calls for let's say $200, does it have any effects on the stock price today (upwards or downwards)?

 

[brianman]

So I bought my first option as a put which expired on Oct 11th worthless. Bought 1 put @155 for 2.04 on ~9/16. I got my $214 worth as I watched the whole process and how it fluctuated through all the turmoil and most importantly how it ended up being worthless and expired at the end.

I wanted to see how it felt to bet against TSLA (in a very small way) and I actually could have made money for a few days, but felt more enlightened just letting it run its course.

Now, after experiencing the put option I'm not sold on playing with options in general. I find that if I didn't have a day job it might be worthwhile, but I won't be doing more of it in the short term.

I told you a couple times to sell (at points when it would have been @ profit).

 

[sub]

Another newbie question, may help others here also: Let's say TSLA is trading about where it's at right now, $185. If one were to sell a call at 195 and buy a put at 175 (both trading within .10 of each other), what would the affect be on those prices if tesla were to for example, go up to 200, but more importantly, if TSLA were to drop under 175 and keep going?

Why do I ask? Trying to see how I could put my margin into play with little to no risk. I just started looking at the numbers on this this morning so slap me if it's a dumb idea, but how would it workout to buy shares of TSLA at 185, sell a 195 call, but a 175 put hoping that those would balance out my down side, and my upside would be from 185 to 195? Would I be protected on the downside? I have my core position, trying to figure out how to leverage my margin without having my entire account at risk in case of a black swan event. Wouldn't care if shares were called away if above 195, actually would prefer it as this is basically max profit (minus additional fees, 194.99 would be max I guess).

 

[Mario Kadastik]

Yes, selling a covered call and using the funds to buy a put protects your downside and limits your upside. It's a short term protective strategy that can be employed if you want to protect in a very weird situation where there are a lot of unknowns (kind of like it is with the whole shutdown and debt stuff). Then again it effectively means that your max profit is at $194,9 and max loss is at $175,1 and below limiting you to a $20 range.

 

[sub]

Yes, selling a covered call and using the funds to buy a put protects your downside and limits your upside. It's a short term protective strategy that can be employed if you want to protect in a very weird situation where there are a lot of unknowns (kind of like it is with the whole shutdown and debt stuff). Then again it effectively means that your max profit is at $194,9 and max loss is at $175,1 and below limiting you to a $20 range.

Yes, what i'm trying to figure out is if I had bought shares at 185, would I keep that small window of upside from 185 to 195 yet limit my downside due to the put and the premium from the sold call? The premium from the call would protect me down to 175, but the Put will also gain value all the way down and then below 175. Hope my question makes sense?