Newbie Options Trading

[ckessel]

I'm sure this move has a name, but I don't know what it is. In looking at put and call's for TSLA for Jan 18th, I noticed I could do the following:

Buy 1 put for $162.50, sell 1 call for $170. Those almost exactly offset. The stock was slightly closer to the $162.50 mark than the $170 at the time (166.1 or some such). To me that means that if I bought 100 shares (on margin), my upside is $3900 and my downside is $3600. If I think the stock direction is a coin flip, it seems like this is a good play as my upside is higher than the downside.

I've looked up stock terms and straddle and strangle don't seem to quite match. Is this just an oddity of the timing of when I looked at the prices?

 

[kenliles]

How does everyone have their options set up for something catastrophic? What I mean is we know someone whom suddenly died of a massive heart attack this pas week and it got me thinking about our options accounts.

My wife knows nothing about options other than some times we win and sometimes we loose. Because of this weeks death I started thinking what would happen if I dropped dead today and we have options that expire this week. My wife knows login info to our accounts but she wouldn't know what to do.

Should I just give her instructions that if I would drop dead to call the account centers and tell them to close all options at current market prices?

Even worse is if her and I would both drop dead, our children, whom do not have login credentials would then have to close the contracts.

For long term options it's not that big of a deal but because of the death and me knowing that we have options that expire in less than 5 days got me to thinking about this.

We use the following (including LEAPS because they are sometimes held to expiration and even stock positions):
With your broker- We established cross Powers of Attorney (each for primary of the other - including IRAs that are in one name only).
This sets up the following procedural scenario:
Leave general instructions in a known file, living will, and last will that describes generally what to do:
ex: Close all Options positions to cash / Or close all option positions to stock etc. (or even more specific if you prefer)
Once in place you can notify your broker to make a note of this for your account;

What I do then, in the same file (that the spouse would access) is have some additional specifics about each of the them (for example, hold the TSLA LEAPS until 6 months before expiration etc.). your spouse then has the authority, general instructions for liquidation if it's too much to handle at the time, and some specifics about some better moves if needed.

In addition, we make sure each is the listed as beneficiary of the other for Will etc. and designate one of our knowledgable relatives (who also has the general instruction) as decision maker for financial issues (in case we are both in a common accident for example)

not sure if that's for everyone of course, but that's what we do for what it's worth

 

[Mario Kadastik]

I'm sure this move has a name, but I don't know what it is. In looking at put and call's for TSLA for Jan 18th, I noticed I could do the following:

Buy 1 put for $162.50, sell 1 call for $170. Those almost exactly offset. The stock was slightly closer to the $162.50 mark than the $170 at the time (166.1 or some such). To me that means that if I bought 100 shares (on margin), my upside is $3900 and my downside is $3600. If I think the stock direction is a coin flip, it seems like this is a good play as my upside is higher than the downside.

I've looked up stock terms and straddle and strangle don't seem to quite match. Is this just an oddity of the timing of when I looked at the prices?

Well if it slowly goes down you still lose money but it's capped yes.

 

[ckessel]

Well if it slowly goes down you still lose money but it's capped yes.

Right, it's capped in both directions, but the upside cap has more room than the downside cap. If the stock direction seems like a coinflip, heads I win $3900, tails I lose $3600. Seems like a coin you'd flip every chance you had.

 

[mershaw2001]

are you referring to a collar?

 

[ckessel]

are you referring to a collar?

Yea, that's it

 

[mershaw2001]

Ok i got a new margin call (for me) today. A Day trade call. I've been rolling a $30,000 margin call forward each week to be super leveraged in tesla (and solar and mortgages) for about 2 months, but these are just fed and house calls.

So this new day trade call comes because i went up over my 4x intraday limit, and now owe 22,000. The online documentation says that this call cannot be satisfied by selling, but instead must have cash moved over to the account. I obviously don't have 22,000 sitting around. Does anyone else have experience with this?

 

[772]

I'm sure this move has a name, but I don't know what it is. In looking at put and call's for TSLA for Jan 18th, I noticed I could do the following:

Buy 1 put for $162.50, sell 1 call for $170. Those almost exactly offset. The stock was slightly closer to the $162.50 mark than the $170 at the time (166.1 or some such). To me that means that if I bought 100 shares (on margin), my upside is $3900 and my downside is $3600. If I think the stock direction is a coin flip, it seems like this is a good play as my upside is higher than the downside.

I've looked up stock terms and straddle and strangle don't seem to quite match. Is this just an oddity of the timing of when I looked at the prices?

This is how I read it... if you buy a put and sell a call (naked), you only make money if the stock goes down. Yes, they are at different strike prices, so there is some wiggle room, but in general, as the stock goes up, you lose money.

You said the premiums almost exactly offset, so in this case, you break even if the stock closes between 162.50 and 170. If the stock closes above 170, you are in the red, but you make money if it's below 162.50.

If you're selling the call as a covered call, then that is indeed a collar, and the price between 162.50 and 170 is the only variable, as your loss (162.50) and profit (170) are capped.

- - - Updated - - -

Ok i got a new margin call (for me) today. A Day trade call. I've been rolling a $30,000 margin call forward each week to be super leveraged in tesla (and solar and mortgages) for about 2 months, but these are just fed and house calls.

So this new day trade call comes because i went up over my 4x intraday limit, and now owe 22,000. The online documentation says that this call cannot be satisfied by selling, but instead must have cash moved over to the account. I obviously don't have 22,000 sitting around. Does anyone else have experience with this?

If it's your first time with that, your broker will probably let it slide if you call and explain. Otherwise you'll just have to wait out the restriction (quite a pain)

 

[justdoit]

Ok i got a new margin call (for me) today. A Day trade call. I've been rolling a $30,000 margin call forward each week to be super leveraged in tesla (and solar and mortgages) for about 2 months, but these are just fed and house calls.

So this new day trade call comes because i went up over my 4x intraday limit, and now owe 22,000. The online documentation says that this call cannot be satisfied by selling, but instead must have cash moved over to the account. I obviously don't have 22,000 sitting around. Does anyone else have experience with this?

I'm pretty sure you can sell in order to cover the day trade call. Not sure what broker you're using, but I know Fidelity has a Margin calculator which lets you put in trades and it shows how that will affect your margin, house/day trade call, etc. That's usually pretty helpful.

 

[mershaw2001]

I'm on fidelity and that tool only lets you figure out a house or fed call, this seems to be a special type of call: a day trade call.

 

[772]

I'm on fidelity and that tool only lets you figure out a house or fed call, this seems to be a special type of call: a day trade call.

This is what i'm seeing on their website:

• What is a day trade call?A day trade call is generated whenever opening trades exceed the account’s day trade buying power and are closed on the same day. Customers have five business days to meet a call in an unrestricted account by depositing cash or marginable securities in the account.
  The sale of an existing position may satisfy a day trade call but is considered a day trade liquidation. Three day trade liquidations within a 12-month period will cause the account to be restricted. If funds are deposited to meet a day trade call, there is a minimum two-day hold period on those funds in order to consider the call met. Adding additional days for money movement times may be necessary.
  Any distributions or checks written out of the account during the open day trade call period will increase the call dollar for dollar. If a day trade call of a pattern day trader is not met by the due date, the account is restricted.
  Account restrictions if a call is unmet
  This reduces the leverage of the day trade buying power for 90 days to one times the exchange surplus without the use of time and tick.

• 
  

And this from FINRA:

Day Trading Margin Calls

What if I exceed my day-trading buying power?
If you exceed your day-trading buying power limitations, your brokerage firm will issue a day-trading margin call to you. You will have, at most, five business days to deposit funds to meet this day-trading margin call. Until the margin call is met, your day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on your daily total trading commitment. If the day-trading margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.

Anyway, I would call Fidelity and request them to reset the Pattern Day Trading status on your account.

 

[mershaw2001]

Thanks 772, I'll sell out tomorrow or the next day and then give them a call and see if they can reset that... though it sounds like right now i've just lost time and tick and am at 2x equity instead of 4x equity for day trading power- and i think i might just revert if i meet the call without even looping them in. I'll post what happens.

 

[borat99]

TD Ameritrade users — do you know how to roll options from one expiration to another? Can't find that anywhere in Help Center. TIA.

 

[InTheShadows]

I use the mobile trader app.

 

[FluxCap]

TD Ameritrade users — do you know how to roll options from one expiration to another? Can't find that anywhere in Help Center. TIA.

I have a similar question -- I am holding some CSIQ Jan15 LEAPS at a 35 strike (way in the money now) and I was thinking of rolling them up to a higher strike. Does this make sense, assuming I am anticipating significant further gains before January 2015? I know IV is high right now, but I guess I figured if I make a simultaneous sell the old, buy the new transaction, at least the IV is somewhat consistent...is this a decent strategy?

Thanks,
Flux

 

[borat99]

I use the mobile trader app.

I use mobile trader too but am clueless. I only see options to sell and buy currently held options. Would be great if you could upload a screenshot. highly appreciated.

 

[ggr]

I found out something new and useful yesterday (Wednesday morning, after the huge runup on Tuesday). I was at a conference in the morning, then catching a taxi and plane, so I was in no position to closely monitor the market, or read or write TMC forum, while it was open. Wednesday in pre-trading TSLA went up to over 171 (about where it is now, as I type), but I was pretty sure (correctly) it would not sustain that level. I had some of Sleepyhead's recommended cheap $155 calls and wanted to effectively cash the calls while the price was high, but it's virtually impossible to sell options in pre-market. So, what to do? Before the conference started I called the broker and got them to exercise the call. Obviously this took a lot of margin temporarily, and that is the downside of doing this, but that's what I think margin is for. Anyway, I expected this to happen when the market opened, and I was intending to very quickly sell the shares at market price upon open, in hopes of catching the high price. But at the end of the call with the broker, I asked "When will the shares appear" and he said "They're already there!". This was at 8:30 EST. That surprised me, but hey, I turned around and sold them in pre-market for $170.60, giving me a whopping profit for holding the options for 5 days and the stock for 5 minutes.

Sleepyhead, I now owe you a case of good wine. I was going to do something like that anyway, but your reasoning was compelling enough to make it easy for me.

 

[772]

ggr, I did not know that the shares would show up if exercised outside of regular trading hours. That's definitely a nice work-around. My broker allows me to exercise options online, so I would not even have to call in!

 

[InTheShadows]

Click on your option, scroll to the bottom and click "create rolling order"

 

[mershaw2001]

Well it turns out the day trade call was no big deal. Even though the official requirement is different from a house or fed call, in that officially you cannot sell to meet it, when I sold enough stock/options it just went away. As you guys said. Thanks all.