Options - questions and answers - Page 21

Is there a more n00bish options thread than this one?  I need some 'first day on the job' kinda help understanding my first options transaction and after reading some of the posts in here I'm not sure I'm in the right place.  <--  Well that's just funny!

For option noobs, the best place to get up to speed is from the CBOE itself, they have tons of financial resources:

http://www.cboe.com/LearnCenter/Default.aspx

I have a question,

if i buy 10 contracts of XYZ calls, $10 strike, .40 premium.     and the stock goes to $15 and i exercise the option. I will have to buy the 1000 shares and then sell it to make the profit.  correct?    

Now if I don't have the required amount to buy the 1000 shares, will my broker cover me?

I also know i can sell to close the position and make money from the premium.

Quote:

Originally Posted by hedgegod 

 

Now if I don't have the required amount to buy the 1000 shares, will my broker cover me?

 

not unless your name is Warren Buffet....

Quote:

Originally Posted by hedgegod 

I have a question,

 

if i buy 10 contracts of XYZ calls, $10 strike, .40 premium.     and the stock goes to $15 and i exercise the option. I will have to buy the 1000 shares and then sell it to make the profit.  correct?    

 

Now if I don't have the required amount to buy the 1000 shares, will my broker cover me?

 

I also know i can sell to close the position and make money from the premium.

Since you can't and don't want to hold the stock position, you're best to sell the contract over exercising it. This way you can benefit from any remaining time value on the contract. If you hold it, I *think* your account would show the purchase of 1000 shares at 10.00 and sale at 15.00 automatically. However, I'm not sure and it could vary by broker, so check before you assume.

Thanks, I will contact my broker and ask them.

Thanks StockJock-e and anyone else who's willing to help.

I've spent a lot of time online reading great options tutorials, problem is none of them seem to fit with my first call purchase. I keep feeling like I did something backward.  Can anyone give me scenarios of how this purchase works or might play out?  I thought I understood, but the more I read the less confident I feel.

1 contract, SIRI Jun 16 $2 call @ $0.32 Call (Buy Open - etrade order type)

Quote:

Originally Posted by setgate 

Thanks StockJock-e and anyone else who's willing to help.

 

I've spent a lot of time online reading great options tutorials, problem is none of them seem to fit with my first call purchase. I keep feeling like I did something backward.  Can anyone give me scenarios of how this purchase works or might play out?  I thought I understood, but the more I read the less confident I feel.

 

1 contract, SIRI Jun 16 $2 call @ $0.32 Call (Buy Open - etrade order type)

 

 

SIRI is at 2.23 currently. Just for an example, we'll say you bought that when SIRI was 2.10. That would give that contract 0.10 of intrisic value, and the rest, 0.22 of premium or time value. That time value ticks away every day you have the contract and the rate increases as you get closer to expiration, especially the last few weeks. Whenever SIRI goes up I'm sure you notice the value of your contract increase as well and decrease when SIRI goes down. With this contract, you will want to hold it until you feel SIRI will not go up much more or you are happy with the profits. You are best to sell at least a few weeks out so you can profit on the remaining time value.

It sounds like you may not be sure what the "Buy Open" means. Theres 4 types of transactions (2 buy and 2 sell).

Buy To Open - Buying a stock/contract to hold

Sell To Close - Selling a stock/contract that you have.

Sell To Open - Selling a stock/contract that you do not have (shorting)

Buy To Close - Buying a stock/contract that you are short to close your position.

Here's a good place to start for free:

http://www.optionseducation.org/en.html
 

Quote:

Originally Posted by setgate 

Is there a more n00bish options thread than this one?  I need some 'first day on the job' kinda help understanding my first options transaction and after reading some of the posts in here I'm not sure I'm in the right place.  <--  Well that's just funny!

Quote:

Originally Posted by jsteinm1 

Quote:

Originally Posted by hedgegod 

I have a question,

 

if i buy 10 contracts of XYZ calls, $10 strike, .40 premium.     and the stock goes to $15 and i exercise the option. I will have to buy the 1000 shares and then sell it to make the profit.  correct?    

 

Now if I don't have the required amount to buy the 1000 shares, will my broker cover me?

 

I also know i can sell to close the position and make money from the premium.

Since you can't and don't want to hold the stock position, you're best to sell the contract over exercising it. This way you can benefit from any remaining time value on the contract. If you hold it, I *think* your account would show the purchase of 1000 shares at 10.00 and sale at 15.00 automatically. However, I'm not sure and it could vary by broker, so check before you assume.

 

 

Just an update, I talked to OptionsXpress this morning about how they handle this. For them, they said if I have an options spread where both legs are expiring in the money, its fine to leave them as they are and my account will take care of itself even if I can't cover the short position by itself. However, they said if only the short position is expiring in the money, then its best if I handle it by closing my position by the end of the day instead of their risk department having to liquidate stock for me. This would also apply to long in the money positions that you can't cover like you mentioned above - best to sell it before expiration if you can't hold the position.

hey everyone.  first post.  gonna jump right into the options!!!

i am paper trading and guess i accidentally made $500 today doing options after reading this last night.  i guess i bought a put, then turned around and sold it for a pretty good price?  made my head spin a little.  got a lot to learn.  Thanks for this thread, and i will go back and re read the first few pages.  this is going to be fun, I think.

Quote:

Originally Posted by bdrusse 

hey everyone.  first post.  gonna jump right into the options!!!

 

i am paper trading and guess i accidentally made $500 today doing options after reading this last night.  i guess i bought a put, then turned around and sold it for a pretty good price?  made my head spin a little.  got a lot to learn.  Thanks for this thread, and i will go back and re read the first few pages.  this is going to be fun, I think.

Don't think its necessarily easily repeatable. I did this on AAPL with real money, bought puts on the way down, flipped them for calls right at near perfect timing (lucky) and sold them for a good profit again, doubling my money (made about $330). That worked out well for me, however I've tried to scalp several times since and even though I'm in and out quick when my timing is off, it jams me $50-$100 of loss because commissions are $13 each way for me, and that will nickel and dime a small account fast. Doing scalp plays requires a pretty heafty account, because one method is by doing small "feeler" trades that may often turn into a loss of a few hundred dollars, but then you hit the big ones that are more than enough to cover all the losses. Small accounts can't do that because commissions are such a high percentage of the losses (and profits).

heh.  no doubt.  i do not think it is necessarily repeatable.  i am still trying to figure out what the heck i did.  I thought i was putting in a limit order to sell it at any time it hit its strike point before it expired.  I guess i just sold the contract to somebody else at a higher price?  I still don't know.  and options house isn't the most user friendly interface for seeing my gains and losses and where they came from.

well i am still learning options.  it is a lot to get my head around.  i have been more successful (paper trading) options, than i have in my real stock, in actual stocks.  i am moving slow and making sure i get it down and how and why things move before i get too crazy.  I have not even got into puts yet.  right now i am doing buy to open and buy to close.  sell to open and sell to close.

i will list a couple trades i made successfully, then i have a question at the end.  sorry if it seems very laymen.  i didn't find an "options for dummies" thread.

i think i shorted best buy.  That would be an initial sell to open, right?  i did a sell to open last week at 10 contracts at $1.10.  it was for...sep 12 at $20.  it tanked this week as i had anticipated and then i "exercised it"  is that the right terminology? i did a buy to close.  that was the 10 contracts at .79

a question here...the open and close...all that means is i am opening the contract and closing the contract.  that is regardless if i buy or sell it first, right?

i know this was discussed earlier in the thread, but it was a LOT to soak in for a novice, and maybe if i ask in my own words and get an answer, i will have a better understanding.

selling to open, means i am paying for the right to sell those shares at 1.10 regardless of how the chain moves be it up or down, right?  and then buying to close, means i am actually buying the shares that i sold, at whatever price i buy them at, netting the difference as either profit or loss?  is that right?  assuming i am right on that, who had to pay the 1.10 per share, when i sold mine.  was it whichever individual i went into a contract with?  did my buying of the option to close the deal, force somebody into a sell?

i guess what is baking my noodle, is if the new price was .79 when i sold, who ate the .31 difference?  if i didn't actually own the stock i was selling, somebody had to eat it, right?  i am really confused on this part.

it bugs me because i feel like i have it down to a point, but am afraid i will be in some contract one day, and forced to buy or sell a stock because somebody i was in contract with exercised, forcing a loss on me.  is that how it works, or do i really need to go read a "for dummies" thread or book?

hope my questions aren't more confusing to the people reading them.

the buy to opens, i don't think i am as confused on.  i buy it and if it goes up, sell it...everybody gets what they want...right?  me at my profit, and the next guy, hoping it goes up making them a profit...

^^^^ disregard all that.  I feel dumb for asking.  i followed a couple links up in the thread a little and answered some of my own questions.