Newbie Options Trading

[Blurry_Eyed]

I bought some puts with cash, but since then my account has been margin enabled. I sold the puts and bought slightly more in calls. I have far more than enough in cash to cover the transactions, but TDAmeritrade lists me as having a slight negative margin balance as it seems to have used that rather than my cash to finance the purchase of the calls. It's not a problem I suppose, assuming they're not charging me interest, but I'm curious why it's done that way?

It might be the timing of your trades. If you sold the puts today and bought calls the same day, you technically don't have the cash yet. Options cash becomes available the next trading (Trade +1) day. So TD is fronting you the cash until the Put sale cash arrives in your account tomorrow.
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update -

I checked your post again and I think you said that you had cash in your account, so the above may not be the right theory. Did you have cash in the account that was settled cash before you made the call purchase? If so, then I'm not sure why TD decided to margin you. But if you sold the puts, your cash balance would increase even though the cash had not settled yet. With a margin account, you can utilize cash that will settle the next day or in 3 days (Some investments take 3 days to receive the cash once sold, while others only take 1).

 

[ckessel]

Did you have cash in the account that was settled cash before you made the call purchase? If so, then I'm not sure why TD decided to margin you.

Yep. I've got more than enough cash to cover the bought call even without the proceeds of the sold put, which is why I'm confused.

Maybe it's TD being nice and fronting me the money for 3 days rather than pulling my cash out of the default "money market" thing it sticks spare cash into?

 

[pz1975]

I had bought some Oct. 4 and Oct. 11 TSLA puts earlier in the day and they were up by 100% and 80% respectively near the end of the day. Since they were the first options I had ever tried, I wanted to sell before the end of the day for the profit. I did a "sell to close" about 30 minutes before the end of trading day and they did not sell. I understand that there has to be a buyer for them to sell but there was high volume on these puts so I thought 30 minutes would be enough - obviously not. Since the pending transactions were not completed, they were going to be held over until tomorrow. I remember reading that it is not good to leave option buy/sell orders open between trading days so I canceled them.

Some questions for you experts:

1. If I had been desperate to sell them before the end of closing, could I have somehow sold them cheaper than the regular quoted price (jumping the queue so I ensured they sold right away)?

2. If my put ends up in the money at the end of expiration date, does the assignment transaction whereby I sell the shares to the buyer at the strike automatically happen or do I have to do something to trigger it? (I know this is a very basic question but I just want to cover all bases!)

3. If I had let me 'sell to close' transactions carry over to tomorrow, I assume they would be sold eventually with whatever sale price the market would have tomorrow and the quoted price when I chose to sell them would be irrelevant. Is that right?

Thanks so much for everyone's help on here - it is like a crash course in options trading for someone like me with minimal financial background and I really appreciate it.

 

[borat99]

I bought these on Monday and yesterday.

NOV 13 200
DEC 13 200
MAR 14 230
MAR 14 250

Obviously, I'm in the red on those options. Assuming the stock starts improving next week, what are the chances that they will be green around NOV earnings? Should I hang on to them until or through earnings or would it be wiser to cut the losses tomorrow? My gut feeling tells me that I should hold on to them.

Not a lot. 6k house money. Any advice appreciated.

 

[brianman]

(Call) NOV 13 200

I bought some of these as well. I plan on selling them before earnings.

(Call) DEC 13 200

My thinking today is that these would be sold after earnings.

 

[borat99]

Thanks for the advice, brainman. Will hold them for now and re-evaluate my strategy in a few weeks. Hopefully the fire is put out by then.

 

[c041v]

I bought some of these as well. I plan on selling them before earnings.

Ditto. I've been buying them in small lots as the stock price goes down. Unfortunately, because of some Dec puts and a few other things in my account, I was getting uncomfortably close to my margin limit and sold off some stock at 170 today. Hated to do it, but my account is much more comfortable now. Ugh.

If I've learned anything, I'll probably split my selling to half right before and the other half right after. I got caught int he IV crush of Q2 where I was holding a lot of near expiry options that suddenly became worth a lot less after earnings and were too far OTM in the first place. I feel comfortable with the 200's given that we were just there a few days ago. Luckily, I did make some money by offloading some volatile calls as we were building towards earnings. Looking to do something similar this round.

 

[Larken]

I just got my options account funded with some money I can afford to play with and am looking to make my first trade and was hoping to receive some suggestions from more experienced traders. I am bullish on TSLA and think we will see a further upward trend towards QE3. What would you guys recommend Nov13 or Dec13? Deep OTM like 210 or closer to ITM? I know it's difficult to give someone else investment advice but I would appreciate it. I only have around $1500 to play with so I can only basically afford 1 contract of either.

 

[hershey101]

I just got my options account funded with some money I can afford to play with and am looking to make my first trade and was hoping to receive some suggestions from more experienced traders. I am bullish on TSLA and think we will see a further upward trend towards QE3. What would you guys recommend Nov13 or Dec13? Deep OTM like 210 or closer to ITM? I know it's difficult to give someone else investment advice but I would appreciate it. I only have around $1500 to play with so I can only basically afford 1 contract of either.

Don't underestimate $1500, I started off with $1500 and I'm pretty close to paying for 50% of my Model S now...
As for which options, I'm not sure right now... I have a bunch of $180s-$190s and $200s expiring Oct, Nov, Dec, and Jan... Depends on your risk tolarance. I think that if you have a slight tollarance for risk, and feel like this will blow over soon enough and the price will come back to $190 soon, I would buy some OTM (ie. $180/$190) Oct expiration b/c they don't have the time preimum and IV for the Q3 release like the Nov and Dec. ones do.

 

[hockeythug]

I applied for option trading with Vanguard and they righfully(very new to options) only gave me Level 1 (Yes/Write Covered Calls, Buy Protective Puts, and Write Covered Puts). I currently own 141 shares with a cost average of $88. I am having a hard time wraping my head around what I could achive with writing covered calls. It effectivly limits my gains correct?

 

[sub]

Yes, selling calls limits your gains but it can be a good thing also. I've learned the good and bad of this recently since i'm new to options. I did the exact opposite of what I should have done. I sold some calls when TSLA was trading sideways in the 160's. I thought I priced them far enough out and them the DB upgrade came and they were crushed. I was back in the green briefly with the latest news but now i'm hosed again. My shares will most likely be called away. What I should have done is sold the calls after a big spike, selling 205's or higher when the stock passed 190 would have been great since volatility was increased and the likelihood of the stock going higher was limited. I would have only sold pre earnings calls though. The premium from selling calls gives you some downside protection.

 

[pz1975]

Quick questions: If I bought calls and they expire ITM, do they automatically convert into shares or would I have to do something? How long until they show up in the account? What happens if I don't have enough money in the account to pay for them - do I get a message asking for more funds to be put into the account?

Thanks.

 

[clmason]

Quick questions: If I bought calls and they expire ITM, do they automatically convert into shares or would I have to do something? How long until they show up in the account? What happens if I don't have enough money in the account to pay for them - do I get a message asking for more funds to be put into the account?

Thanks.

Newbie to options myself, but this is how I understand it.*

No they don't convert into share unless you exercise the calls. Most people sell their options for profit instead of actually exercising them.

You can sell your options for profit and take the earnings and buy shares. if you want to exercise the calls you need to have the $$$ to pay for them at the strike price.


If you don't have enough money to exercise the option, you can't unless you have margin enabled on your account, that gives you the credit to it. But you do have to come up with the cash eventually or be forced to sell something in your account to get the cash.

 

[brg2290]

Hello. First post on this thread. Been mostly following Short term and Long Term investment threads, and speculation on Gen. III. I have recently had a chance to watch the day by day, blow by blow action on the Short term thread, where a lot of attention is devoted to options. I have a question (I did do a search of this thread and didn't find anything specific pertaining to my question, and I have not read the 500 plus pages, although I believe this would probably be more valuable to me than the options book I'm reading - Options Demystified).

Is there a general rule of thumb on how much should be allocated to common stocks, and how much made available for options?

 

[pz1975]

Thanks for the advice - that is what I thought.

Follow-up question: how does one "exercise the options" (what would the trade type be on an online platform)? I know most of the time people sell the call but I was thinking hypothetically if you tried to sell it and didn't get it done in time. Is there a time limit after expiration to exercise the call (or put)? What if you had a valuable call option that expired and you were unable to exercise the option before the closing bell on the expiry date - can it be done 1 hour, 1 day, 1 week later?

Thanks.

Newbie to options myself, but this is how I understand it.*

No they don't convert into share unless you exercise the calls. Most people sell their options for profit instead of actually exercising them.

You can sell your options for profit and take the earnings and buy shares. if you want to exercise the calls you need to have the $$$ to pay for them at the strike price.


If you don't have enough money to exercise the option, you can't unless you have margin enabled on your account, that gives you the credit to it. But you do have to come up with the cash eventually or be forced to sell something in your account to get the cash.

 

[c041v]

Thanks for the advice - that is what I thought.

Follow-up question: how does one "exercise the options" (what would the trade type be on an online platform)? I know most of the time people sell the call but I was thinking hypothetically if you tried to sell it and didn't get it done in time. Is there a time limit after expiration to exercise the call (or put)? What if you had a valuable call option that expired and you were unable to exercise the option before the closing bell on the expiry date - can it be done 1 hour, 1 day, 1 week later?

Thanks.

http://www.forbes.com/sites/billsin...r-failure-to-exercise-in-the-money-options/2/

Relevant bits;

On options expiration day (the Saturday immediately following the third Friday of each month), it is our firm’s policy to automatically exercise all long equity options contracts that are at least $0.01 in-the-money, and all long index options contracts that are at least $0.01 in-the-money. [SUP]33 [/SUP]To exercise options outside of these parameters, or to decline the automatic exercise of options within these parameters, options owners must notify a Client Services representative of their instructions. This notification must occur by 4:30 p.m. ET on the last trading day for the options contracts. It is the responsibility of the investor to have sufficient buying power in the account to exercise a long call options contract, and to have the stock in the account to exercise long put options. TD Ameritrade Inc. reserves the right to close out options positions that pose risk if exercised or assigned if you do not have sufficient buying power to cover any possible exercise or assignments, please deposit funds or close out your positions before the close of market on the Friday prior to expiration. Please contact a broker or refer to your account’s position page to confirm options assignments for your account.

TD Ameritrade, Inc. receives assignment instructions from the Options Clearing Corporation (OCC) and uses a lottery system to randomly assign individual brokerage accounts that are short the options positions. A more detailed description of the random allocation procedure is available on request or online in the Help Center.

[SUP]33[/SUP] If trading in an underlying security has been halted and trading does not resume before expiration, the option may not be automatically exercised. Exercise settlement values for index options are determined in a variety of ways. The settlement value may be determined by the closing prices of the index securities on the last trading day before expiration or by the opening prices of the index securities on expiration day. Please contact a Client Services representative for more information.

 

[Ocelot]

Quick questions: If I bought calls and they expire ITM, do they automatically convert into shares or would I have to do something? How long until they show up in the account? What happens if I don't have enough money in the account to pay for them - do I get a message asking for more funds to be put into the account?

Thanks.

i would speak to your broker/banker. i did this as held some calls and wanted the stock as i thought the stock was going to go up much more than if i just sold the calls. i did not have to do anything, and the shares were automatically put into my account as the call price was much below the share price. I did ensure I had the money in my account to pay for them. They told me as long as the shares are 1 cent more than the call, there would be nothing i actively needed to do.

 

[mershaw2001]

I had bought some Oct. 4 and Oct. 11 TSLA puts earlier in the day and they were up by 100% and 80% respectively near the end of the day. Since they were the first options I had ever tried, I wanted to sell before the end of the day for the profit. I did a "sell to close" about 30 minutes before the end of trading day and they did not sell. I understand that there has to be a buyer for them to sell but there was high volume on these puts so I thought 30 minutes would be enough - obviously not. Since the pending transactions were not completed, they were going to be held over until tomorrow. I remember reading that it is not good to leave option buy/sell orders open between trading days so I canceled them.

Some questions for you experts:

1. If I had been desperate to sell them before the end of closing, could I have somehow sold them cheaper than the regular quoted price (jumping the queue so I ensured they sold right away)?

2. If my put ends up in the money at the end of expiration date, does the assignment transaction whereby I sell the shares to the buyer at the strike automatically happen or do I have to do something to trigger it? (I know this is a very basic question but I just want to cover all bases!)

3. If I had let me 'sell to close' transactions carry over to tomorrow, I assume they would be sold eventually with whatever sale price the market would have tomorrow and the quoted price when I chose to sell them would be irrelevant. Is that right?

Thanks so much for everyone's help on here - it is like a crash course in options trading for someone like me with minimal financial background and I really appreciate it.

Did anyone ever answer these questions?

1) yes, you can always put your ask lower than the current ask and jump the queue. Match the bid if you need to dump it immediately, but if you have a few min, probe the bid ask spread by starting at the ask price, then dropping your ask by 10 cents, and then 10 cents again etc.

2) You will be automatically exercised, you'll be short 100 shares if you had none, or you will sell your shares.

3) Your sell to close might be a daily trade, if you set it to 'good till canceled' it would carry over. That's not the best idea, since things can jump. But you can do that. You should do it as a limit order, and if you are long the options and looking to sell them each day they decrease in value (unless the stock moves up) so it's best to get rid of them at the time you want to get rid of them.

 

[Larken]

Don't underestimate $1500, I started off with $1500 and I'm pretty close to paying for 50% of my Model S now...
As for which options, I'm not sure right now... I have a bunch of $180s-$190s and $200s expiring Oct, Nov, Dec, and Jan... Depends on your risk tolarance. I think that if you have a slight tollarance for risk, and feel like this will blow over soon enough and the price will come back to $190 soon, I would buy some OTM (ie. $180/$190) Oct expiration b/c they don't have the time preimum and IV for the Q3 release like the Nov and Dec. ones do.

Thank you for the reply and very encouraging to read what you've been able to accomplish with the same amount. My risk tolerance is high and Yesterday I ended up buying OctWk2 185 strike while the stock was at around 174 and this has yielded a good return so far and I expect it to keep going up substantially on Monday judging from the after hours market. I also purchased one contract for Nov13 195. Also, interesting what you pointed out regarding the Oct expiration calls vs the Nov ones in regards to the premium being higher on the latter due to QE3 release. I think we are going to see an upwards trend from now till december at least and I just need to sell my Octwk2 calls sometime next week to free up money and keep rolling that money in Oct call options. What are your thoughts on this? Thanks for taking your time helping out newbies like myself.

 

[borat99]

How do people deal with short-term gain from options in their taxable accounts? I just ignore the consequence and keep investing, but am not sure if that's the most rational approach.