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Message
re: All About OPTIONS - THREAD
Posted on 1/17/22 at 11:42 pm to Brobocop
Posted on 1/17/22 at 11:42 pm to Brobocop
Just started trading options on tastyworks about 2-3 weeks ago. Loving this thread and look forward to learning more.
Anybody accidentally put the wrong call/put in and completely freak out?
Anybody accidentally put the wrong call/put in and completely freak out?
1
Posted on 3/2/22 at 12:45 pm to Pendulum
Ok Option Pro friends, I need help, I made a trade, I have a couple of questions.
Thesis
I made my first option trade yesterday. So I was home from work yesterday and I was watching news closely on ukraine front. As soon as I saw story that Russia didnt send legit foreign negotiators to the ukraine peace talks Monday; I decided this conflict isnt ending anytime soon. I watch aluminum pricing very closely everyday for work. The price of aluminum, is absolutely exploding like I've never seen in my career. This is due in part to a company named Rusal being 1 of 2 of the biggest alu primary exporters in the world. It's them and a company named Rio Tinto based in Australia and UK and recently bought out a huge canada producer in last decade. I'm sure alot of you have heard of alcoa, which is a US domestic producer, and that stock has been sent to the moon, too late on that one. Well Rio Tinto makes AA look microscopic.
So I wasnt thinking options at all, I just looked up RIO yesterday and saw it's actually suprisingly super cheap, 6 p/e, has a 8% yield, and all the fundamentals are beautiful, looks like they have great management. I bought 5k worth the shares, and I thought it was a such an amazing entry point given Rusal being cut off from rest of the world, I wanted to play it with leverage, so I bought 2 call options. I'm targeting $95 on this trade.
I started pretty small because I don't know what I'm doing. I was looking at the Apr 14 calls for 77.5,80 and 82.5; price was at 79 when I'm looking. I did math based on closing the option in future, and thought 77.5 was safest, but limited the upside. So I bought 2 calls for 4.00. I have it written down on spdsht at home, but I'll give the prices at the time for the other strikes later today. Maybe I didnt make the best call.
Well about 24 hrs later, looks like a pretty good trade. I'm confused how this is priced though, as I'm typing this, RIO is at 83.5. So If I executed it, would I be buying 200 shares at 77.5 and flipping for 83.5? That like a $1200 difference, and it cost 801.02 so that should be $398.98 profit, but it's showing almost $450, hows that work?
Anything I should know about holding onto these vs just taking profit now? I feel it's certain to keep going up as long as global disruption continues. The Aluminum market is so dependent on Russia. RIO also is a huge player in uranium. There might be more legs to this trade.
Thesis
I made my first option trade yesterday. So I was home from work yesterday and I was watching news closely on ukraine front. As soon as I saw story that Russia didnt send legit foreign negotiators to the ukraine peace talks Monday; I decided this conflict isnt ending anytime soon. I watch aluminum pricing very closely everyday for work. The price of aluminum, is absolutely exploding like I've never seen in my career. This is due in part to a company named Rusal being 1 of 2 of the biggest alu primary exporters in the world. It's them and a company named Rio Tinto based in Australia and UK and recently bought out a huge canada producer in last decade. I'm sure alot of you have heard of alcoa, which is a US domestic producer, and that stock has been sent to the moon, too late on that one. Well Rio Tinto makes AA look microscopic.
So I wasnt thinking options at all, I just looked up RIO yesterday and saw it's actually suprisingly super cheap, 6 p/e, has a 8% yield, and all the fundamentals are beautiful, looks like they have great management. I bought 5k worth the shares, and I thought it was a such an amazing entry point given Rusal being cut off from rest of the world, I wanted to play it with leverage, so I bought 2 call options. I'm targeting $95 on this trade.
I started pretty small because I don't know what I'm doing. I was looking at the Apr 14 calls for 77.5,80 and 82.5; price was at 79 when I'm looking. I did math based on closing the option in future, and thought 77.5 was safest, but limited the upside. So I bought 2 calls for 4.00. I have it written down on spdsht at home, but I'll give the prices at the time for the other strikes later today. Maybe I didnt make the best call.
Well about 24 hrs later, looks like a pretty good trade. I'm confused how this is priced though, as I'm typing this, RIO is at 83.5. So If I executed it, would I be buying 200 shares at 77.5 and flipping for 83.5? That like a $1200 difference, and it cost 801.02 so that should be $398.98 profit, but it's showing almost $450, hows that work?
Anything I should know about holding onto these vs just taking profit now? I feel it's certain to keep going up as long as global disruption continues. The Aluminum market is so dependent on Russia. RIO also is a huge player in uranium. There might be more legs to this trade.
This post was edited on 3/2/22 at 3:32 pm
Posted on 3/2/22 at 5:48 pm to Pendulum
You are thinking about options wrong. Yes, a call is a contract that allows you to buy 100 shares at that strike price, but it is just a trading vehicle. You want to sell your call when it hits your price target (or stop target) or your thesis changes.
You don't usually want to exercise the option or hold until expiration as you lose some of the extrinsic value in the option. When you want out, you just sell it. Even if you want the stock, sell the option and then buy the shares. It is generally the more cost effective route. That extrinsic value is why your math doesn't work out right now (it is constantly changing based on the greeks for that particular contract). That simple math is only valid at the expiration. Options are very dynamic and the price will fluctuate much more than the price of the underlying.
You don't usually want to exercise the option or hold until expiration as you lose some of the extrinsic value in the option. When you want out, you just sell it. Even if you want the stock, sell the option and then buy the shares. It is generally the more cost effective route. That extrinsic value is why your math doesn't work out right now (it is constantly changing based on the greeks for that particular contract). That simple math is only valid at the expiration. Options are very dynamic and the price will fluctuate much more than the price of the underlying.
Posted on 3/2/22 at 7:28 pm to Pendulum
quote:
Well about 24 hrs later, looks like a pretty good trade. I'm confused how this is priced though, as I'm typing this, RIO is at 83.5. So If I executed it, would I be buying 200 shares at 77.5 and flipping for 83.5? That like a $1200 difference, and it cost 801.02 so that should be $398.98 profit, but it's showing almost $450, hows that work?
You won't take possession of the stock. You will just buy and sell the option.
You BTO(bought to open)(since you are opening a position) 2 - April 14 77.5 calls for $4.00. This is a debit.
If you want to sell tomorrow and provided the stock stays at the same price you will
STC(sell to close)(since you are closing the position) 2 - April 14 77.5 calls for $6.25. This is a credit. Since you have 2 contracts this is a $450 gain.
$625 - $400 = $225 x 2 contracts = $450. That is the math.
This post was edited on 3/2/22 at 7:34 pm
Posted on 3/2/22 at 8:59 pm to Pendulum
Depends on what you want to do with it and how much cash you have in your account.
1- If you want to own the stock and can claim the stock at 77.5, then do it. However, you have to have the cash in your account to do that.
2- If you don't, as others have stated, close the calls at the current value. You make the difference between purchase and what you sold it back for.
For me, I get out with 50% to 65% profit. Sometimes... 25%. I have seen many people think "$450 is good, but 10K would be better" and end up losing money.
In the end you gotta decide what you are willing to do.
On a side note, there is nothing wrong with buying the stock and selling calls. It's a bit safer in my opinion.
Your example is that you would now own the stock at $77.5, and it's currently at 83.5. You are considering closing it.... but watch this:
1- You exercise your right to buy.
2- You sell 2 calls that end on March 18th @ the $85 strike. Just as you paid for your calls that you just exercised, somebody purchases the calls you are selling.
Right now the $85 strike would make you $220.
Playing that through... Before the 18th, the stock goes to $87 and the people you sold it to exercises their right to purchase at $85.
You made $220 selling those calls. You purchased at $77.5, (cost $15,500) and now they are paying you $85 (or $17,000)
Total profit, $1,500 + $220.
Now lets say it does not reach $85. Well, you keep all the premium ($220) and still own the stock and can sell 2 more calls for the following month OR just sell the stocks.
1- If you want to own the stock and can claim the stock at 77.5, then do it. However, you have to have the cash in your account to do that.
2- If you don't, as others have stated, close the calls at the current value. You make the difference between purchase and what you sold it back for.
quote:
Anything I should know about holding onto these vs just taking profit now?
For me, I get out with 50% to 65% profit. Sometimes... 25%. I have seen many people think "$450 is good, but 10K would be better" and end up losing money.
In the end you gotta decide what you are willing to do.
On a side note, there is nothing wrong with buying the stock and selling calls. It's a bit safer in my opinion.
Your example is that you would now own the stock at $77.5, and it's currently at 83.5. You are considering closing it.... but watch this:
1- You exercise your right to buy.
2- You sell 2 calls that end on March 18th @ the $85 strike. Just as you paid for your calls that you just exercised, somebody purchases the calls you are selling.
Right now the $85 strike would make you $220.
Playing that through... Before the 18th, the stock goes to $87 and the people you sold it to exercises their right to purchase at $85.
You made $220 selling those calls. You purchased at $77.5, (cost $15,500) and now they are paying you $85 (or $17,000)
Total profit, $1,500 + $220.
Now lets say it does not reach $85. Well, you keep all the premium ($220) and still own the stock and can sell 2 more calls for the following month OR just sell the stocks.
Posted on 3/2/22 at 9:22 pm to Jjdoc
You make selling covered calls sound like it’s a flawless strategy. It is not.
Posted on 3/2/22 at 9:31 pm to slackster
quote:
You make selling covered calls sound like it’s a flawless strategy. It is not.
There are no flawless strategies. I do this everyday.
If you want to talk about what you concerns are... we can.
Posted on 3/2/22 at 9:40 pm to Jjdoc
I asked you about one of your trades in a thread last week, I believe. Something about selling calls and puts near the current price. Maybe it was NIO?
Anyway, just thought I’d point out that covered call strategies typically deliver less return than simply owning the shares. They’re only going to pay off in flat to down markets, which are a small part of the stock market historically, and difficult to determine ahead of time.
Anyway, just thought I’d point out that covered call strategies typically deliver less return than simply owning the shares. They’re only going to pay off in flat to down markets, which are a small part of the stock market historically, and difficult to determine ahead of time.
Posted on 3/2/22 at 9:50 pm to slackster
quote:
I asked you about one of your trades in a thread last week, I believe. Something about selling calls and puts near the current price. Maybe it was NIO?
I'm sorry, I didn't see it. I will look for it.
quote:
Anyway, just thought I’d point out that covered call strategies typically deliver less return than simply owning the shares.
We will disagree on that!
quote:
They’re only going to pay off in flat to down markets, which are a small part of the stock market historically, and difficult to determine ahead of time.
..... Come on. You know better. Selling calls or puts is a part of a persons overall investment strategy.
Never did I say to not hold stocks long term. Never did I say not to hold great Divi stocks either.
Posted on 3/2/22 at 10:45 pm to slackster
quote:
slackster
I found it. Sorry I missed that.
I answered and we can continue in there or here.
Posted on 3/3/22 at 12:51 am to Pendulum
I am confused as to why you think you have to exercise the options. You are not obligated to do so. You can simply close out the position and bank the profit.
Did your order to buy on March 1st fill at 14:39:22 or 15:42:25?
I had well over 200 calls of CLF in a few strikes last Friday with zero intention of exercising any of them. I was fortunate enough to make as much as 16x on some.
Did your order to buy on March 1st fill at 14:39:22 or 15:42:25?
I had well over 200 calls of CLF in a few strikes last Friday with zero intention of exercising any of them. I was fortunate enough to make as much as 16x on some.
Posted on 3/3/22 at 1:10 am to WaveForLSU
Have you traded options before with other brokers or is this the first time trading options on any platform? What is your general impression of Tastyworks and if you have used others before, how does it compare?
I have fat fingered orders with Schwab and not realize it until later. One example, I got filled on an order for 222 contracts when my intention was 22 contracts. I also use Fidelity, but they cap option orders to 200 contracts per ticket. I get it, but I would prefer that they raise/remove the contract limit if you are closing the position.
I have found that I get better fills with Fidelity than Schwab.
I have fat fingered orders with Schwab and not realize it until later. One example, I got filled on an order for 222 contracts when my intention was 22 contracts. I also use Fidelity, but they cap option orders to 200 contracts per ticket. I get it, but I would prefer that they raise/remove the contract limit if you are closing the position.
I have found that I get better fills with Fidelity than Schwab.
Posted on 3/3/22 at 5:42 am to Brobocop
Been daytrading SPY using the 8/21ema cross for a few weeks. Doing OK but not amazing, about a 50% win rate.
Anything else I can look for to avoid fakeouts?
Anything else I can look for to avoid fakeouts?
Posted on 3/3/22 at 6:56 am to Jjdoc
quote:
We will disagree on that!
I’m not sure what there is to disagree on there. Stocks typically go up. Selling calls against them limits your upside and typically returns less than simply owning the stock outright.
Look at something like QYLD vs the QQQ outright. Both the absolute return and the risk adjusted return are inferior for QYLD over any long period of time.
Options can have a place in a portfolio, but you have to know what you’re doing, and you have to ask yourself is there a better way to achieve whatever goal you’re setting.
This post was edited on 3/3/22 at 6:56 am
Posted on 3/3/22 at 7:25 am to slackster
quote:
Stocks typically go up
So buy more FB?
Posted on 3/3/22 at 9:28 am to slackster
quote:
I’m not sure what there is to disagree on there. Stocks typically go up. Selling calls against them limits your upside and typically returns less than simply owning the stock outright.
It does not. Simply isn't true. An example of this is PRTY. I purchased in at $.64 when the lock downs happened. I sold calls and never had to sell the stock all the way up to $9.2 where I sold my shares.
I'm doing it now with NIO. Today I closed those $21.5 calls ending tomorrow @ $.09. That's a profit of $91 per. And I still OWN the stock.
Posted on 3/3/22 at 9:56 am to Jjdoc
A) congrats on an all timer trade on PRTY at $.64 and then selling at $9.20.
B) a couple exceptions don’t prove anything. My point is, broadly speaking, a covered call strategy underperforms the underlying security. If you think you’ve got a system you can use to disprove that, I’m all ears.
B) a couple exceptions don’t prove anything. My point is, broadly speaking, a covered call strategy underperforms the underlying security. If you think you’ve got a system you can use to disprove that, I’m all ears.
Posted on 3/3/22 at 9:59 am to slackster
A better strategy is to add calls on your long portfolio and hold about 15-25% cash. For comparisons sake passive funds are about 10 bps cash on average.
Posted on 3/3/22 at 10:28 am to slackster
quote:
A) congrats on an all timer trade on PRTY at $.64 and then selling at $9.20.
I think anybody could have thrown a dart and picked a winning stock during that time!
quote:
B) a couple exceptions don’t prove anything. My point is, broadly speaking, a covered call strategy underperforms the underlying security. If you think you’ve got a system you can use to disprove that, I’m all ears.
I'm saying you are simply wrong. I prove that daily.
AAPL.. Samething. Purchased after the split. I have sold calls all the way up. I was assigned at the $155 Strike. Switched to selling puts, and had to buy back at $148.
Now explain to me how I ended up with less money than the person who just purchased the stock and sat on it.
Posted on 3/3/22 at 2:26 pm to Jjdoc
quote:
AAPL.. Samething. Purchased after the split. I have sold calls all the way up. I was assigned at the $155 Strike. Switched to selling puts, and had to buy back at $148.
What was the stock selling at when you sold for $155?
What was the stock selling at when you had to buy it at $148?
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