Option Education

[leemalone2k3]

Hi sorry I missed your question last week. If I have covered calls, I typically hold he stock until I am called out of the position. In this case I am not familiar with the stock but looking at the chart it is difficult to determine support and resistance levels, so I would not trade it in that fashion.

To answer your question, it is possible to sell your stock while holding the naked call if you have level 4 trading authority from your broker. However I do not recommend ever selling naked calls. If the stick rallies you risk a margin call and the possibility of unlimited losses. Instead if you want to e it the trade consider buying back your call prior to or simultaneously when you sell the stock to remove that risk b

[MTRX2]

Newbie Covered Call Question

Hello Everyone! I have a quick question on a recent Covered Call. Thank you in advance for an answer!!

I bought 100x shares of ORPH at $10.62 ($1,062.61) with 1 Covered Call at $12.50 for July 16 (premium $340.00).

The current market for ORPH is $7.24.

Can I, or is there any advantage, to sell my 100x $10.62 shares (now) for the $7.62 price ... and then before July 16 make sure I have 100 x shares should my Covered Call get assigned?

Or are my current $10.62 shares locked up until July 16th?

[Manwaring]

Thanks for giving us this info.

[johnnyb61820]

Can someone explain these non-standard options to me? For KDP Nov 16 there is a 75 strike Call with a bid of 52.90. In the notes it says, "$10375.0 cash in lieu of shares, 100 shares of KDP". What does that mean? How is this option settled? What do the terms mean? How is the "in-the-moneyness" determined?

[leemalone2k3]

What Farooq said. Also volume is low because few people understand how to trade them compared to stocks.

I sell options in most cases, and let them expire worthless for max gain.

[farooq]

1- 90 % of option buyers lose money so slowly number of player dry out.
2- In low volatility environment option buyer rarely makes money only writers could but when market is dried up writing does not carry enough premium to justify risk of aggressive writing.
3- We are in one of the longest low volatility bull market ever.
4- Computers are in control they have no emotions to make gyration happen. They buy dips and sell high.
All are my opinions there could be many others.

[naturalborninvestor]

Why is the volume of stock options so low?

I have traded index options in the past, but only recently started to look into stock options. I find the volume of almost all options disturbingly low. What am I missing?

[dbelov275]

Any recommendation?

[leemalone2k3]

Great idea, get a demo acct. and practice a few months.

[dbelov275]

Okay. But I may some sort of d demo account to practice some skills I learned while reading some of the comments in this thread.

[leemalone2k3]

You are welcome. Come on over to optionmillionaires.com and trade live with us every day.

[dbelov275]

Thanks for this board. It was really helpful. I have learned quite a lot just reading through.

[SSP]

Question to board, does anyone know what this strategy is, and what's it called? #msg-125204359

[Zorax]

Thanks. Still haven't figured out what they mean by free. It's not exactly on the site in any obvious way.

[leemalone2k3]

Hi KittP,
I am not involved with that aspect of OM. My job is training, so I'm not really sure how the membership works. I did see jb posted this yesterday so you may want to look into it:

Have a few 15-day trials/promos to OM. com -for info send email to [e-mail] w/ ‘trial’in header-first come basis

[Zorax]

I'm extremely pissed at Oanda. They just changed the reopen time again, minutes AFTER the midnight open time, right in front of me. It now says open Saturday 1400 hours. This is almost 3 trading sessions.

[Zorax]

On your site, it talks about a bronze member being free, yet I didn't find a link anywhere. Is it by invite? I turned all pop up blocking off as well. Maybe I'm an idiot. Is a bronze member the 3 day deal?
The sales set up on the site puts me off a little. But that's just me.

thx.

[Zorax]

Lee, thanks for the offer in Pm, but I'm going to do some heavy reading from the links on your site so I'm not wasting peoples time.
Can't do my forex at work of course, rushed home so I could get some short currency positions and Oanda just happened to be shut down for maintenance...from noon til this midnight...they never did this before. I really think it had something to do with the eu vote and they're trying to protect something.

[leemalone2k3]

Just bought AAPL 93.50/92.50 put spread for next week at .37. Risking .37 to make 1.00 if AAPL is below 92.50 next friday.

[leemalone2k3]

Great! Keep me updated. When trading indices I would look towards the S&P options verses the Dow just for liquidity reasons. Lately I have been trading AAPL options. Here is a trade I entered last Friday and sold today. It is called a bearish put vertical spread.
Bought 10 AAPL 93.50 wp .60 -$600.00
Sold short 10 AAPL 92.50 wp .45 +$450.00
This trade cost me a total of $150.00. I sold 7 of the spread at .44 for $308.00 and 3 at .55 for $165.00. Not too shabby for a small investment.

I try to keep my options purchases as cheap as possible.

[Zorax]

I'll be looking into this shortly.
Damn, wish I could have gotten into some short DOW positions.

It's going to take weeks, but I think everything will come down some.

[leemalone2k3]

Unfortunately we don't have a free section. Premium options training programs are very expensive. We at OM are the cheapest ones I've ever found. I took the full premier program (called Investing PHD program) from Investools years ago and paid about $25k for the 2 year program. Many of our clients have paid for their year subscriptions in as few one or two trade ideas we offer every trading day in our live chat room. We have assembled some of the finest options traders I've ever run across.

Again, I suggest you send an email to jimmybob at OM and ask him for a free trial membership for a week, then come hang out in the live room with us during that time if he approves it. The info you can get during that trial period would take you months to read on your own. You may change your mind on the cost of membership during that time period as well. If you visit us, feel free to ask any of our clients in our live chat room what they think about us and what we have to offer.

I also conduct private webinars on a limited basis if you would like to go that route, but an two hours of a private webinar is the cost of a month of diamond membership.

If you choose to do self study, you can go to CBOE.com for free.

[Zorax]

Checked out your site, way too rich for my blood unfortunately. Is it free to read any regular forum on there anywhere?

[Zorax]

I will be a regular reader. It's never easy guessing the markets in an election year, specially this late in the run. And I think you're right, but this time it's going to be real I feel. IMO I've noticed a change with guard at the fed in how they telegraph their rates game. For the last 10 years or so, the feds would not give any real clues about what they're thinking and everyone would be guessing and reacting to speculation.

Which to me is an artificial force allowing too much room for speculative games by big players and banks and such. But now, the feds are actually giving timelines and more distinct information which I think now forces big speculators to act according to an strongly projected 'actual' rate which narrows their playing field and doesn't really allow for too much artificial inflates or deflates for their spreads. To me, this should force the whole market to come back down to reality.

But that's my theory, as weird as it is.

[leemalone2k3]

I would advise paper trading them (practice) while watching them stream on your platform.Because they are a derivative, you need to understand what determines their trading price at any given moment. Read through the first few pages of this board to get a good intro.
I also think we are in for a major correction, but I think it will not be until the election is over.

[Zorax]

Thanks...I'm looking at shorting the main index's as I'm thinking we're going into a major correction of the big three. And I wanted to know if I can keep a position into the fall.

I will definitely go to that website. I'm way green with options, as in inexperienced, not in the plus column.
I will need level 2 at least.

[leemalone2k3]

Hi KittP.
All options have an expiration date, but some of those expirations go out for two years. Take for instance the SPX- The S&P500 index has options you can trade until the Third week of December 2018.

Find out from scottrade what type of option trading authority they allow you to trade. You may also want to shop around at other brokers to compare commissions. I use Thinkorswim and Option House as my brokers.
Level 1 allows you to sell covered calls against stock you own- a great way to pay yourself weekly and protecting your long stock positions
Level2 allows you to purchase calls and puts, and then sell them.
Level 3 allows you to sell spreads on stocks. This means if you purchase a option, you can sell other options against them.
Level 4 allows you to trade naked short options on stock.
Level 5 allows you to sell naked short index options
If they only allow you level one, I would suggest searching for another broker that will allow you at least level 2. I use level 3 authority on 95% of my option trades for the following reasons:
Spreads cost you less to trade
You can make money on spreads even if the stock stays flat or only moves a little bit.
You have a higher chance of a winning trade with spreads.
Before you trade any options, I would highly suggest you educate yourself on option valuation.
You also may want to visit us at www.optionmillionaires.com. Tell jb I sent you and perhaps he will give you a couple of weeks free in our live chat room.

[Zorax]

Hey leemalone.... I think scottrade allows me to do options on a limited basis, but I'm asking you, is there an put option that can stay active as long as you want? Like with a index?

[TheLastOneSitting]

I've been trading it and doing well off the swings. I was just curious looking at the option why anybody would realistically want a 4 strike price. I guess it makes sense that on a low price stock the calls are a bit skewed.

[leemalone2k3]

I would rather trade the stock instead of the option because the stock is cheap.

[TheLastOneSitting]

Just to clarify I understand the risk/reward aspect of paying 1.4 vs .3, but I'm talking in terms of realistically why would you want to take the .3 call at 4? If it hits 4 you're making a good return on the 1 ITM call anyway right?

[TheLastOneSitting]

This is probably a really stupid question... But I'm new to options, I plan on reading up before I start trading but if you look at FXCM,

A Buy open call Aug 21st 2015 I can choose a strike price of

1.0 at 1.4 ask
2.5 at .6 ask
4.0 at .3 ask

So why would anybody buy anything other then a strike price of 1?

[AnG5640]

Here's another good resource...... Check out his other YouTube videos too. Tons of good stuff...

[AnG5640]

Good training course for options. Well worth the $147 cost... I like the way Clay "dummies it down".....so people like me can understand it :)

http://claytrader.com/courses/options-trading-simplified/

[leemalone2k3]

I think the best place to learn to trade options is to join the option millionaires chat room

[phaseshift]

What do you guys think is the best place to learn how to trade options? For someone new to options it can be very intimidating and is hard to figure out where to start. Is there a website that starts you from the very basic of options into the most advanced?

[phaseshift]

What do you guys think is the best place to learn how to trade options? For someone new to options it can be very intimidating and is hard to figure out where to start. Is there a website that starts you from the very basic of options into the most advanced?

[Toofuzzy]

Bbluck

Part of that $155 is not really a premium. It is the difference between the current price and the strike price of the put. You will get slightly more actual premium by selling SLIGHTLY out of the money puts. Sell puts at a strike price just below the current price. The further out you go in time the greater the premium, though if you could keep selling monthlies without getting hit you will make more over time not counting the multiple commisions.

I like to go 6 months to a year out.

Toofuzzy

[Toofuzzy]

Hi bkluck

You may want to sell a slightly out of the money put instead. You will take in more TIME premium (though lower actual premium) and you will need just a little less margin in your account.

Lets say a stock is at 50 and you are willing to buy at 45 and you are also willing to buy even more at 40

Sell a 45 put six months or a year out.

If the stock drops to 45 before expiration, buy the stock, it may go back up before expiration and you would miss the opportunity.

If it stays down till expiration or drops further you would have bought more at 40 and hopefully you took in enough premium to bring the price down to that or close.

The above assumes you have enough funds for an additional purchase.

Toofuzzy

[Parabelle]

I had to call them and verbally prove that I understood them to get approved. I now understand their approval process, I lost a boatload when I first started trading them. I might have known how to execute an order but It doesn't mean a thing because I didn't understand things like time decay or the Greeks!

[jukemaster]

Jarvis,

I recently switched over to TDA from Scottrade because of TDA's platform, what a difference.

Haven't even scratched the surface on the new platform but love it so far and there are tons of educational resources available that I too have yet to dive into.

I believe I have both Tier 1 & 2 available to me but could be wrong. And guessing here but I would say the length of time or 'experience' you state you have trading such is a big determining factor for them. I indicated several years (3+) I believe and I doubt they would know if you were to exaggerate a bit if you feel comfortable doing so. The fear of 'the unknown' keeps me from gambling too largely and losing it all so as it currently stands I am content with whatever tiers I have available.

Where do you see which tiers you are eligible for?

[Jarvis27]

I am having trouble getting approved for tier 2 options trading with td. How did some of you get approved when you first started out trading options?

[leemalone2k3]

Earlier that week.

[db]

When did you starting Legging into the sold 530/535?

[db]

....

[leemalone2k3]

Hi db,
The reason I got such a high premium is because I legged into the 535/530 credit spread. I try to leg into all my positions.

[db]

Hi there Lee, thank you for replying to my question to you on the Options Millionaires board; I hope you don't mind that I moved to your board as the topic has more to do with Options Education :)

Here is a copied section of my post to you below:

you posted:
"I entered the trade at 2.07 debit
Bought 5 Dec 555 call 3.58
Sold 5 Dec 575 call 1.51
Total cost (risk) - $1035.00 if below 555
max gain is +8695.00 if above 575
Break even 557.07 above the break even pays 25.00/ penny move.

Now I'll take the last two trades of selling premium to lower the cost or risk of this longer term trade. Do this strategy a few times a week and you'll be amazed at how well it seems to work in your favor. These are all 3 contract trades.

Here's the last two trades posted here on ihub:

1. Thursaday afternoon Nov 21:
Sold AAPL 535/530 weekly call spread for 1.05
Bot 535 call .24
Sold 530c 1.29
Will cover the 530 call this morning
Friday morning Nov 22

My question in RED
What was the expiry of the Sold AAPL 535/530 weekly call spread? Was the expiry the same as the 5 DEC 555/575 Bullish Call Spread you initially opened?

your response in green:
The expiration in red was for the 22nd.

I figured your strategy was to buy back the short side for a gain, thereby lowering the cost of your longs. Then wait for a move and short against them again. You could possibly short the options and buy them back cheaper many times before expiration....so in essence it makes sense that you are selling the nearest term expiration which was the NOV4 13 weeklys, which expired on Nov 22. expiration.

The problem I am having is that I am trying to replay the trade on TOS On Demand and cannot get the $1.05 Credit on the sold 530/535 spread you executed on Nov 21. When I try to put on the same 530/535 spread, I only get a .05 cent max credit that day replaying it on the On Demand feature.

Results I get with the Sold Call Spread that is available on 11/21/2013:

NOV4 13 (1) 530/535
Bot 535 call .05
Sold 530c .07
The credit I show is only .02 cents?

What am I missing here?

Thank is advance for your help Lee.
db

[Newly2b]

BTW, the problem with your scenario of selling a Feb 17.50Put on a stock trading at 16.51 today is that there is no guarantee the option will be exercised before expiry.

Your risk is unlimited if the stock price falls, and limited to the prem received if it rises. IOW, if the price of the stock falls, the price of the option will rise and unless you buy it back, losing money on the trade, you may have the stock put to you at expiry at a price far above what you would pay for the stock outright in the market at that point. If the price of the stock rises, it may no longer be ITM at expiry, although you will still get to keep the premium you received for selling the Put, you just won't get the stock put to you.

One sells a Put or buys a Call when one expects a stock's price to rise. One sells a Call or buys a Put when one expects a stock's price to fall.

Newly