*Official* Options trading thread: Why Alpha/Beta when you can Theta?

[kusok]

so im just learning my way through this a bit but so far I bought calls for KMI, Ford, Hanes and Rivian. I assume people get addicted to this like gambling eh?

I have a few hundred shares of citibank i have been considering selling covered calls on, is that mostly what you do?

I’m up 130% ytd selling options. I have no idea why more people don’t do this. It’s free moneys. But you have to learn first!

I would never buy calls or puts. Wayyyy too dangerous. You have to learn for years paper trading.

Be careful Breh.

[chino3]

I’m up 130% ytd selling options. I have no idea why more people don’t do this. It’s free moneys. But you have to learn first!

I would never buy calls or puts. Wayyyy too dangerous. You have to learn for years paper trading.

Be careful Breh.

Aren’t you the guy who doesn’t know how percentages work?

[kusok]

Aren’t you the guy who doesn’t know how percentages work?

Brah… u shorted the market? Or just mad you didn’t buy in yet? Why so much hate? Lol, we r all one, bro.

[jafomofo]

so i want to preface this by saying im just doing this with small amounts of money to learn so i dont mind losing money as part of this. That said, here is my question that I'm hoping someone can explain to me.

i bought 7/21 10 C calls for robinhood and my price paid on 6/14 was .57. those have been bouncing around but now that the price of the stock is pinging the strike price the value of the options is at .44 so im underwater by like 63 bucks. I see that the value of options is not explicitly tied to the stock price but what specifically is impacting the price of the option to create the disparity?

[Bingo559]

Every day that passes and Robin Hood doesn't cross $10, you will lose more money. I think the time value is eroding

[usersignup2]

Do some reading on option greeks. It's critical that you understand this.

For your case Theta value determines how much your contract decays, or loses every day, regardless of whether the stock value changes or not. The other greeks, delta particularly play a role as well. Delta and theta are the two easiest to determine option values for a given price movement/time.

So currently your contract 7/21 10c has a theta of -.0093. So that means if the stock stayed the same price and volatility doesn't change, your contract loses $0.93 every day.

Greeks can change daily, so values and their affect are not static.

[jafomofo]

Do some reading on option greeks. It's critical that you understand this.

For your case Theta value determines how much your contract decays, or loses every day, regardless of whether the stock value changes or not. The other greeks, delta particularly play a role as well. Delta and theta are the two easiest to determine option values for a given price movement/time.

So currently your contract 7/21 10c has a theta of -.0093. So that means if the stock stayed the same price and volatility doesn't change, your contract loses $0.93 every day.

Greeks can change daily, so values and their affect are not static.

Gotcha. I had to actually start power etrade and add the columns to see those. That makes sense. So the .0093 becomes .93 for each contract and then 5 contracts held for 14 days accounts for about 60 bucks which is close enough. Does that decay get factored into the cost of the option daily then? Thank you.

Assuming these pass the strike price and I decide to just exercise and hold the stock it becomes a moot point anyhow correct? Net result to me would be that I bought the underlying stock at a 5-10% discount and could either hold or sell immediately? I'll watch some videos on exercising them in deference to closing.

[usersignup2]

Gotcha. I had to actually start power etrade and add the columns to see those. That makes sense. So the .0093 becomes .93 for each contract and then 5 contracts held for 14 days accounts for about 60 bucks which is close enough. Does that decay get factored into the cost of the option daily then? Thank you.

Assuming these pass the strike price and I decide to just exercise and hold the stock it becomes a moot point anyhow correct? Net result to me would be that I bought the underlying stock at a 5-10% discount and could either hold or sell immediately? I'll watch some videos on exercising them in deference to closing.

Yes the decay gets factored daily.

If you exercise and want to sell immediately, you can do a covered call instead.

[Crazy_Desi]

Hello. Reposting from main trading thread. Just thought it was more appropriate to post here..

I placed an option trade via limit order for $1.15 price on a covered call. It executed but I only got $1.14.

Is this legal? What's the point of a limit order if the broker can scalp a penny here and there from your profit? On a large enough scale of users/trades this is quite a lot of money for them.

[usersignup2]

Hello. Reposting from main trading thread. Just thought it was more appropriate to post here..

Is this a buy or sell order? To open or to close?

Have you checked to see if this is net of trading fees?

Failing that, call your broker and ask what's up.

[Crazy_Desi]

Is this a buy or sell order? To open or to close?

Have you checked to see if this is net of trading fees?

Failing that, call your broker and ask what's up.

Sell to open for a covered call.

Hmm.. I see it now. $.65 commission + $.01 regulatory fee.. so option value becomes $1.1434. Guess that makes sense!

[meep316]

Anyone follow ICT?

[jafomofo]

for people that trade short term options, do you use a strategy like call spreads of i guess straddle spreads if that is the correct term? Trying to figure out the system from a guy I saw online and it seems like he places 3 conditional strike prices above and below the opening price so that they only trigger a purchase when a price in either direction is met.

[SipNPiz]

Be super careful with spreads brah especially when it comes to after hours assignment, brokerage might not execute your other leg

[RobParks2M]

for people that trade short term options, do you use a strategy like call spreads of i guess straddle spreads if that is the correct term? Trying to figure out the system from a guy I saw online and it seems like he places 3 conditional strike prices above and below the opening price so that they only trigger a purchase when a price in either direction is met.

Just gonna be blunt. If you don’t know what is happening enough to be able to explain it in and out to someone in no way should you use this “system”.
Ded srs.

[jafomofo]

Just gonna be blunt. If you don’t know what is happening enough to be able to explain it in and out to someone in no way should you use this “system”.
Ded srs.

I sort of understood what he was doing, just wasn't sure how automated it was. Confirmed he's just setting alerts and completing manual orders based on momentum milestones. Trying to figure out how to automate some things myself atm but not using it for any actual trading atm.

[RobParks2M]

I sort of understood what he was doing, just wasn't sure how automated it was. Confirmed he's just setting alerts and completing manual orders based on momentum milestones. Trying to figure out how to automate some things myself atm but not using it for any actual trading atm.

Yup so until you can thoroughly explain to someone the intricacies of how the trade works I wouldn’t advise using it. Although we’ve all broken the rule and learned from the bad experience lmao

[jafomofo]

is there some difference between rolling options and just rebuying new options? i don't see the point if you incur your gain/loss when you roll. what am i missing?

[kusok]

is there some difference between rolling options and just rebuying new options? i don't see the point if you incur your gain/loss when you roll. what am i missing?

Sometimes when you’re rolling a particularly expensive call that you sold you may not even have the available cash to buy it back first. So a broker may let you execute it in one go.

Another detail is that sometimes you can close one option but you can find quite easily that you can’t open a new one if no one‘s going to deal with you, this happens, even when there is volume and open interest, so rolling an option in one transaction at least prevents you from being stuck midway.

[chalup]

Someone give me a low down on calls/options and best way to trade them? also some links on understanding TA on low/mid cap stocks that I want to buy and hold and others buy and flip. Have around 10,000 to start playing with in the market again, but my TA is severely lacking. Using TOS

[usersignup2]

Someone give me a low down on calls/options and best way to trade them? also some links on understanding TA on low/mid cap stocks that I want to buy and hold and others buy and flip. Have around 10,000 to start playing with in the market again, but my TA is severely lacking. Using TOS

The lowdown on buying options is that it is straight up gambling with the added risk of a time limit.

DCA is better than TA if you are buying and holding for long term regardless of small or large cap.

[jafomofo]

thinking about buying a few hundred shares of lumen specifically to do covered calls with as a learning experience. i collect the premium regardless and then the worst case scenario is that the stock hits the stike and i get assigned which means im selling my stock at the strike which is fine because meh. whats the downside here?

if i buy at 1.70, sell a call at 2 and collect 50 bucks in premium. if it breaks 2 and gets exercised then i get .30 per share plus the premium - fees. If it doesn't get exercised then i get to do it over again.. is there some scenario in which i lose out here?

[usersignup2]

thinking about buying a few hundred shares of lumen specifically to do covered calls with as a learning experience. i collect the premium regardless and then the worst case scenario is that the stock hits the stike and i get assigned which means im selling my stock at the strike which is fine because meh. whats the downside here?

if i buy at 1.70, sell a call at 2 and collect 50 bucks in premium. if it breaks 2 and gets exercised then i get .30 per share plus the premium - fees. If it doesn't get exercised then i get to do it over again.. is there some scenario in which i lose out here?

really depends on where you're getting your numbers for your calcs. trading at 1.86 and you want to sell two $2.00 Sep15 call contracts?

if it reaches your strike you can let the shares go while keeping the premium. If you decide you want to keep the shares, you Buy to Close and repurchase the contracts you sold.

The downside is the shares can drop below your purchase price and premium. Say it drops to $1.50, then what? Premiums on $2.00 will be worthless so you'll have a hard time selling premium. Then you'll be stuck with shares at a loss and can't collect premium. This is why it's important that you choose wisely. If you are going to use a covered call strategy to generate cash flow, you need to buy shares that you are a)comfortable holding for the long term and b)is in an upward or sideways trend. You also need to choose stocks that have decent volume otherwise you will be selling calls near the bid and buying at the ask - which, if you are selling for pennies and buying for pennies will erode all of your gains.

[bsmit107]

Just threw $1000 back into Robinhood to play around with options.....not going great so far, but I assumed it would be a learning experience. I've got a buddy helping me but I think he's got a gambling problem, lol. He makes money but some of his pics are just dumb but the potential payout COULD be huge.

Learning daily, but still not sure I'm not going to just lose $1000. lol

[usersignup2]

Everybody wanna be rich but ain't no one got time to learn greeks

[Crazy_Desi]

Everybody wanna be rich but ain't no one got time to learn greeks

Do you ever sell calls on your longs? If you're sitting on a loss.

I DCA and sell calls on those shares only.

[usersignup2]

Do you ever sell calls on your longs? If you're sitting on a loss.

I DCA and sell calls on those shares only.

Yes. My goal is cash flow so generally I will be selling calls or have active sold calls every week.

To do it effectively you need to be confident in your analysis and understand if your stock is in an uptrend, sideways or downtrend and then choose strikes accordingly. As well, you need a strategy if they re about to expire in the money.

Also I would not agree that averaging down on your losers is an effective investing strategy

[RobParks2M]

Just threw $1000 back into Robinhood to play around with options.....not going great so far, but I assumed it would be a learning experience. I've got a buddy helping me but I think he's got a gambling problem, lol. He makes money but some of his pics are just dumb but the potential payout COULD be huge.

Learning daily, but still not sure I'm not going to just lose $1000. lol

I’ve got a portion of my portfolio for big outsized moves based on anticipated moves such as mergers, buyouts, legal news, or plain ole biotech clinical trial results. When you hit the payout can be big. Often enough your long calls will expire worthless so it’s worthwhile to try and get out before they are entirely worthless.

My strategy is buying less than $50/contract with 3-6 months out of you can manage and it helps prevent decay. Obviously this requires going fairly OTM but if the news is worthy of a 100% gain or more it can be solid regardless.

[Crazy_Desi]

Yes. My goal is cash flow so generally I will be selling calls or have active sold calls every week.

To do it effectively you need to be confident in your analysis and understand if your stock is in an uptrend, sideways or downtrend and then choose strikes accordingly. As well, you need a strategy if they re about to expire in the money.

Also I would not agree that averaging down on your losers is an effective investing strategy

Is your strategy simply to roll out at a later/higher strike price if this happens? Or just buy more shares close to strike so those get called away.

DCA has helped me in the past, get out of some bags.

[usersignup2]

Is your strategy simply to roll out at a later/higher strike price if this happens? Or just buy more shares close to strike so those get called away.

DCA has helped me in the past, get out of some bags.

I would just continue to roll out until they expire worthless or get called away.

If you are averaging down a position you plan to exit I think it's much better to put that money into a winner that is in an uptrend since it has a higher likelihood of making up the difference.