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Tripsten
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Options Trading
#26374677 - 12/11/19 09:29 AM (4 years, 2 months ago) |
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So I’ve watched some tutorials and studied for about a week and a half so far
So it’s my understanding that buying a call is investing that the stock will go up to that amount Example of a stock is at 8.73 and I buy a call for 9$ I’m basically putting my money into the belief that that stock will climb to 9$ And vice versus for a put but down like a stock at 8.5 I buy a put for 8 , so I’m investing ( or more betting it feels like ) that that stock will go down to 8
If I’m right about that Here’s my main question
If a stock is at 9.05 and I buy a call for 9 Am I investing that the stock will stay above 9 until the expiration date ? And if it does I’m good ? But also the more it climbs the more i make then right ?
And ofc same for puts If a stock is at 11.03 and I buy a put for 11.5 am I investing. That it will stay below 11.5 until the expiration ? And the lower it drops the more I’ve made off that ?
Misc - learned some hard lessons about liquidity today lol I went to buy an order , 6 buys , only got 1 tho cause of low liquidity , a partial fill But it kept my money for the other 5 So what’s going on w the other 5 The expiration for that is Friday , what happens if I don’t get the ful order by expiration ? And what if I wanted to sell all before I get all of them
Edited by Tripsten (12/11/19 09:30 AM)
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Tripsten
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Re: Options Trading [Re: Tripsten]
#26374682 - 12/11/19 09:32 AM (4 years, 2 months ago) |
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Oh, and if I’m right about my “main” grouping of questions
Let’s say a stock is trading at 8$ and I think it will stay AROUND that range What happens if I buy a call for 7.5$ and a put for 8.5 If it stay between those two do I make money off both ?
Edited by Tripsten (12/11/19 09:33 AM)
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Ahab McBathsalts
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Re: Options Trading [Re: Tripsten] 1
#26376007 - 12/11/19 08:17 PM (4 years, 2 months ago) |
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You are ignoring the cost of call or put.
Quote:
If a stock is at 9.05 and I buy a call for 9 Am I investing that the stock will stay above 9 until the expiration date ? And if it does I’m good ? But also the more it climbs the more i make then right ?
That is only true if you get the call option for free, which will never be the case. Options consist of of a few greeks that make up the price. Theta is the time value of the option. Long dated options expiring several months out will be much more expensive than ones expiring at the end of the week because of the uncertainty of the underlying stock's price. Theta decreases everyday because of the expiry date.
https://www.optionsplaybook.com/options-introduction/option-greeks/
Anyway, there is a bunch of writing on the subject, but keep in mind that the majority of options expire worthless and the best money is in writing options, but option writing can feature unlimited risk and it isn't uncommon to lose more than 400%, 1000% or more on a rare event that demolishes your trade.
Also option trading is a zero sum game in the strictest sense. For every person that gains money in a futures or option market, someone is losing that amount of money on that same option contract. Naturally this attracts the best and brightest in the world to profit off of others.
Best of luck.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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Tripsten
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Indeed I didn’t know of a lot of that Thank you You certainly gave me stuff to think about
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Tripsten
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Re: Options Trading [Re: Tripsten]
#26376691 - 12/12/19 08:00 AM (4 years, 2 months ago) |
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What if, the scenario I described, right ? But Like a stock is at 7$ and I buy a call for 6$ expiring tomorrow , let’s say the break even point was then 6.5 , if it stayed above 6.5 would it be profitable then? And that’s what you meant by “only if you got the option for free” was that I wasn’t taking break even point into consideration ? Cause what sparked that question was I had had that idea and tried it first The stock was at 11.13 I think and I knew it wouldn’t reach 11.5 or maybe it was 12 I don’t rmeber now but I was positive so I bought a put at either 11.5 or 12. The break even was like 11.14 tho or somethifn really low and the farther down from the break even down the stock dropped the more I made If the order hasn’t had to be partially filled due to low volume ( not liquidity I had my terms wrong ) I would have honestly made a good little profit on it , when it went down to the 10.90’s I sprang up from 2 to 300 $ amounts
Edited by Tripsten (12/12/19 08:35 AM)
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Ahab McBathsalts
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Re: Options Trading [Re: Tripsten]
#26376780 - 12/12/19 08:49 AM (4 years, 2 months ago) |
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Lets pull up a real option chain and see if we can get this figured out for a weekly expiring tomorrow.
https://ca.finance.yahoo.com/quote/SPY/options?p=SPY
SPY 317.30+2.88 (+0.92%)
Strike Last Bid Ask Change Volume Open Int. Implied Vol. SPY191213C00316000 2019-12-12 10:25AM EST 316.00 2.21 2.21 2.23 +1.73 +360.42% 15,825 0 16.02% SPY191213C00316500 2019-12-12 10:24AM EST 316.50 1.89 1.83 1.86 +1.54 +440.00% 8,296 0 15.28% SPY191213C00317000 2019-12-12 10:26AM EST 317.00 1.47 1.47 1.48 +1.24 +539.13% 17,605 0 14.21% SPY191213C00317500 2019-12-12 10:26AM EST 317.50 1.14 1.15 1.17 +0.99 +660.00% 11,444 0 13.58% SPY191213C00318000 2019-12-12 10:25AM EST 318.00 0.87 0.87 0.88 +0.77 +770.00% 26,601 0 12.82% SPY191213C00318500 2019-12-12 10:25AM EST 318.50 0.64 0.62 0.64 +0.58 +966.67% 5,262 0 12.18%
So a call at 317.00 would have an intrinsic value of only 0.30. But because there is still a day and half left in the contract it is worth about $1.47. Assuming that the market doesn't move at all in the next 30 hours or so, as we get closer and closer to the Friday close, this $1.47 will keep falling closer and closer to the intrinsic value of 0.30 because at expiry the option is only worth intrinsic value.
Sometimes you can find wierd mis-pricing where stocks only need to stay flat to break even, but usually theta will require you to have a favorable move to keep the value of the option at least at break even.
There are some other strategies besides holding an option to expiring, like selling it for a profit
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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Tripsten
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I see What would those types of strategies be ? Cause I mean there had to be some ways to do well with them cause there are people who make pretty good money off options stuff I don’t mean to come off as doubting or arguing if I am btw you just seem more knowledgeable about this stuff than me so I wanna take the opportunity to ask things
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Ahab McBathsalts
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Re: Options Trading [Re: Tripsten]
#26377104 - 12/12/19 12:14 PM (4 years, 2 months ago) |
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316.13+1.71 (+0.54%)
SPY191213C00317000 2019-12-12 1:52PM EST 317.00 0.67 0.67 0.68 +0.44 +191.30% 49,404 0 11.40
So sticking with that SPY317 call, it's now worth $0.67 and out of the money.
I'm guessing you are on Robinhood, but you can buy and sell an option with different strikes on the same expiry date, buy or sell a spreads with the same strike and different expiry dates, combining holding a lot (100) of the underlying stock and selling calls to pocket the premium or other stock and option combinations.
https://www.amazon.ca/Options-Futures-Other-Derivatives-9th/dp/0133456315

This is a great book, but gets pretty deep into the calculus. I'd get the study guide with answers as well if you want to get the full value out of it.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
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Ahab McBathsalts
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Registered: 11/25/02
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Buying and selling naked options is a lot closer to gambling than investing IMO and like gambling the house has the advantage.
You should be aware of the Pattern Day Trader Rule for taxes and assignment risk.
-------------------- "Nobody exists on purpose. Nobody belongs anywhere. Everybody's going to die."
Edited by Ahab McBathsalts (12/12/19 12:24 PM)
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Tripsten
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I thank you for all this truly
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Samiam76
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Re: Options Trading [Re: Tripsten]
#26381767 - 12/14/19 05:30 PM (4 years, 2 months ago) |
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that was a lot to think about
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Tripsten
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Re: Options Trading [Re: Samiam76]
#26383182 - 12/15/19 11:35 AM (4 years, 2 months ago) |
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Indeed , lots of little things to know Especially the Greeks I’m finding You’ll lose money and not even understand how cause if those So far tho I’m in the green still
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