Newbie Options Trading

[mershaw2001]

Good thing you sold them then, because if they had expired in the money, you would be in the possession of a right that you couldn't exercise. You'd have the right to sell shares at the higher price, but since you don't have the shares... you'd have left money on the table.

The same happens if you have ITM calls; if you don't have the money to purchase the shares on expiry, tough luck.

Disagree. Most brokerages will autoexecute the put and leave you with a short position. Come monday you could buy to cover and walk away with your profit.

 

[The Blue Owl]

Disagree. Most brokerages will autoexecute the put and leave you with a short position. Come monday you could buy to cover and walk away with your profit.

That assumes you have a margin account and/or that you can short-sell. I was thinking of my account, where I can't do either. For instance, my broker explicitly told me that if I hold calls that expire ITM and there isn't enough cash to buy the shares, they will expire worthless. The puts situation is symmetric, and since I can't short-sell (it's a registered account), what you said wouldn't happen.

I didn't know that other brokers did what you described. Learn something new everyday.

BTW, I'm not sure I would want my broker to auto-execute a short sell for me. For instance, what happens if Elon tweets that Model 3 is in beta and the stock opens on Monday with a big gap up and keeps running?

 

[Auzie]

Disagree. Most brokerages will autoexecute the put and leave you with a short position. Come monday you could buy to cover and walk away with your profit.

That assumes you have a margin account and/or that you can short-sell. I was thinking of my account, where I can't do either. For instance, my broker explicitly told me that if I hold calls that expire ITM and there isn't enough cash to buy the shares, they will expire worthless. The puts situation is symmetric, and since I can't short-sell (it's a registered account), what you said wouldn't happen.

I didn't know that other brokers did what you described. Learn something new everyday.

BTW, I'm not sure I would want my broker to auto-execute a short sell for me. For instance, what happens if Elon tweets that Model 3 is in beta and the stock opens on Monday with a big gap up and keeps running?

My account is cash, no margin. My broker will not let me execute a trade for which I do not have sufficient cash to cover all possible options expiration outcomes. Selling puts is thus very prohibitive for me, but selling calls is easy. That makes me think that mershaw may be correct.

 

[The Blue Owl]

My account is cash, no margin. My broker will not let me execute a trade for which I do not have sufficient cash to cover all possible options expiration outcomes. Selling puts is thus very prohibitive for me, but selling calls is easy. That makes me think that mershaw may be correct.

So you are saying that they let you sell naked calls but not puts (unless enough cash)? Then yes, it seems your broker might do what mershaw described. I wasn't familiar with that situation.

 

[Auzie]

Selling covered calls only.

Selling naked calls would be too much risk for me.

 

[The Blue Owl]

Selling covered calls only.

In that case, I don't see how that applies. Your short calls have to be covered with shares, and your short puts have to be covered with enough cash to complete the transaction at expiry. Either way, you can settle your contract (which you have to able to, since you are the contract writer.)

Mershaw was saying that if you are long puts (not puts seller) and the puts expire ITM, and you do not have shares to sell, the broker will automatically initiate a short-sell on your behalf to settle the contract. I didn't know brokers did that, and I know my broker does not. My broker will simply let the puts expire worthless in such a situation.

 

[Auzie]

In that case, I don't see how that applies. Your short calls have to be covered with shares, and your short puts have to be covered with enough cash to complete the transaction at expiry. Either way, you can settle your contract (which you have to able to, since you are the contract writer.)

Mershaw was saying that if you are long puts (not puts seller) and the puts expire ITM, and you do not have shares to sell, the broker will automatically initiate a short-sell on your behalf to settle the contract. I didn't know brokers did that, and I know my broker does not. My broker will simply let the puts expire worthless in such a situation.

You may be correct that my example does not really fit.

I think mershaw described naked puts in margin account. At expiry, options can be exercised at brokers discretion. My understanding is that the options exercise assignment is random, if we can believe that. Perhaps both scenarios are possible (ITM puts exercised or ITM puts expire with no exercise), however it is up to the broker, not account holder, whether options get exercised in a particular account.

 

[Mitthrawnuruodo]

I have spoken a bit on selling puts in this thread. I have been waiting on the 2017 options which released now. I did my ROI analysis and have it here in excel for your information. I said before, I have a portion of my portfolio saved for a house down payment, and to me an acceptable place to store it is in Tesla puts - because the downside of buying 100 shares of Tesla is not much of a downside to me at a price below what it is today.

 

[tdiggity]

I have spoken a bit on selling puts in this thread. I have been waiting on the 2017 options which released now. I did my ROI analysis and have it here in excel for your information. I said before, I have a portion of my portfolio saved for a house down payment, and to me an acceptable place to store it is in Tesla puts - because the downside of buying 100 shares of Tesla is not much of a downside to me at a price below what it is today.

It's possible that the $240+ options can be assigned at anytime, right? Isn't it likely that you'll get assigned on any dips?

 

[Chickenlittle]

promised an update, here it is bought back my covered calls (at strike 250 expire 11/28) for 1.60 would have waited for further drop but with battery negotiations at risk for run. profit 4.70 not bad will wait for dust to settle this week unless large run up and sell more for two week period. would not carry the sold covered calls over december 31 st though

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yes premium low because we are headed down if your a buy and hold investor looking to mitigate the dips this is a good strategy. would you sell a share at 256.30 this week or next? i am sure you would answer yes. selling a call with the stock going up will net you a larger premium BUT your likely to lose your stock and possibly watch it going through your target and not enjoying the increased profit. i am happy to post my selling calls trade and compare to what i would have while i continue this. i only risk a small part of my shares in this strategy. so far

nov 6th 10,000 shares price 244 sold 100 calls strike 250 expiration 11/28/14 proceeds 63,000

will update when i either sell more or buy back

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not snark to state the obvious. i dont enjoy watching it go down but hold out hope that price targets are going to be increased based on the last report??????

sorry quote left off the original post

 

[The Blue Owl]

promised an update, here it is bought back my covered calls (at strike 250 expire 11/28) for 1.60 would have waited for further drop but with battery negotiations at risk for run. profit 4.70 not bad will wait for dust to settle this week unless large run up and sell more for two week period. would not carry the sold covered calls over december 31 st though

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sorry quote left off the original post

Nice exit. Congrats!

 

[Robert.Boston]

It's possible that the $240+ options can be assigned at anytime, right? Isn't it likely that you'll get assigned on any dips?

While that's technically possible, it is always the case that the value of the option exceeds the value of exercising it. The only caveat to this rule is that the bid-ask spread could be wide enough to negate this general result.

 

[Chickenlittle]

While that's technically possible, it is always the case that the value of the option exceeds the value of exercising it. The only caveat to this rule is that the bid-ask spread could be wide enough to negate this general result.

That is true but I have had options of mine exercised early and I have exercised options I bought early even though there was some time premium. The reason I did that was because they were deep in the money, minimal time premium left and I was concerned by selling the option, the stock could go up more in the short time it took to buy the stock. Luky I did because the stock rose two dollars in a couple of minutes and trying to get additional 30 cents would have cost me 2 dollars

 

[mejojo]

What should we be expecting for 11/28 Weekly? Is Friday going to close pretty much like Wednesday? Or does stuff happen on Friday?

 

[The Blue Owl]

What should we be expecting for 11/28 Weekly? Is Friday going to close pretty much like Wednesday? Or does stuff happen on Friday?

No idea, but keep in mind that NASDAQ is closed on Thursday, and on Friday it closes at 1:00 pm EST.

Nasdaq Trading Calendar - Holiday Schedule

 

[willowspuppy]

While that's technically possible, it is always the case that the value of the option exceeds the value of exercising it. The only caveat to this rule is that the bid-ask spread could be wide enough to negate this general result.

I asked a similar question earlier, but this is a situation I'm facing now with a fairly DITM call that is up quite a bit. If I sell the option, I would have to pay short term capital gains on the profit. I'm considering exercising instead and holding the stock to avoid this.

 

[jaanton]

If you sell an option below its intrinsic value, that's a problem. I've had a friend who was using put credit spreads and sometimes the short put was sold for less than intrinsic value and some of those were exercised immediately. Think about it. If you can buy the option, short the stock, and exercise all in one second and make money, you win. No risk. It's very important to avoid this. Because option assignment can be random, someone can make this mistake and you can get hit by it.

While that's technically possible, it is always the case that the value of the option exceeds the value of exercising it. The only caveat to this rule is that the bid-ask spread could be wide enough to negate this general result.

 

[mejojo]

Hey all....I had last Weekly 240 Call that exercised, about 1/3 on margin. (My first exercised Call)

My History statement says the purchase was made at $240.

My Unrealized Gain/Loss page (Schwab) says the Cost per Share is $255.xx

What do I not know that I should have known?

 

[Johan]

Hey all....I had last Weekly 240 Call that exercised, about 1/3 on margin. (My first exercised Call)

My History statement says the purchase was made at $240.

My Unrealized Gain/Loss page (Schwab) says the Cost per Share is $255.xx

What do I not know that I should have known?

Did yoy pay $15.xx (x100) for the call?

 

[mejojo]

Did yoy pay $15.xx (x100) for the call?

Oh ahhh....did not know that got factored into that particular report line. That's my answer!