Watch all the free training videos many times. This will allow that option to be traded at a reasonable bid-ask spread. This makes them difficult to understand, and therefore risky to most investors. One thing that helps me is setting Alerts when I open a position. See Also futures and options trading in nse best stocks to buy in canada news top 5 reasons to invest in gold article my hsa seems rather expensive to invest in. BCI community, Understanding your comfort level is key to your exit deccisions. Back to the watch list.
In the above hypothetical, one contract was a standard options contract, the other non-standard. The standard contract represents shares of the underlying, while the NS contract does not. As an example, when BAC took over Merill Lynch, the owner of shares of Merill received 85 shares of BAC stock plus $ in cash.
Option Trading Answer
Am I on the right track with this one? I know you trade these in you Moms account. Thus I am not going to roll up and out. I am going to let the position get called away. However, I will revisit after the report comes out…. You utilized dollar-cost averaging, covered call writing on ETFs and then rolling out-and-up. Think about how many investors are capable of that. One topic I did not see addressed directly in your Exit Strategies book is exactly when to bail out and buy back an option and sell the corresponding stock.
How many days of negative technical indicators should we endure before getting out of a position? Withn the past 2 — 3 days especially the technicals have turned down for this stock — the price has dropped, the 20 day EMA has turned down, stoch have dropped below 20, and the MACD hist is increasingly negative. Would you buy back the option Jan 30 call and sell the stock at this point, wait for it to come back, or do something else? I am currently in the same situation but real with shares of ASIA.
Our decision is between s 3 and 4 on pages of Exit Strategies…. The first thing I do is try to figure out why the sudden drop, so I check the news. Sure enough Goldman Sachs downgraded this stock from buy to neutral and it took a hit. Now this is just the opinion of one man…he could be right and he could be wrong but the market reacted. Next I look at the numbers. Because of these factors, I am staying with this stock but keeping a close eye on it.
Understanding your comfort level is key to your exit deccisions. I exited both positions today. I can now use that cash for other trades in Jan. Back to the watch list. One thing that helps me is setting Alerts when I open a position. Here are the Alerts that I set up. I am alerted via my cell phone if: I try to keep a close eye on my positions, but it is comforting to know I will be notified if these things happen so I can take the appropriate Exit Strategy.
Most brokerages have alert capabilities that you can use easily. There is something else I do that cannot be controlled by alerts to my knowledge. If the underlying stock surges so much that there is almost no time value in the option premium at any time prior to expiration, I will likely buy back the option if I have the cash to do so. This gives me more time to look for a position in next months cycle with probably higher returns.
In a rising market this can happen more than you would imagine. Sam, you can still buy back the option with very little cash. I executed two complex buy-writes resulting in a net credit today,where the stock was sold and the option was bought back, to close the position.
I then used these funds for an entry into 2 new positions. Brian K long time follower, first time blogger. Brain K, When you say you initiate two new positions.
Do you mean you sell the Feb month right away? I thought we wait and initiate the new positions the following week after the expriation Friday. I am still learning. Does anyone in this forum use Zecco for their brokerage? They seem very cost efficient 10 free trades a month, after that its 4. Be warned though, the Trader Workstation interface has a steep learning curve.
Watch all the free training videos many times. Not sure if they will do it, but if you have the time, drop them a line. They will probably be more inclined if they get more inquiries about it. I want to thank you for participating and sharing information on this blog. We have a great group of both beginner and experienced investors with a common thread… all motivated and willing to help one another.
If a stock takes off and heads to the moon, the strike price is left deep I-T-M. It costs us nothing to close the position. This cash can then be used to generate additional income. Closing a winning position prior to expiration Friday needs to be evaluated with consideration to the amount of time value we are paying to accomplish this.
The results were generally positive boding well for the overall economy. A few disappointed and took a hit:. Since this is on Thursday of the options expiration week, would you still consider selling covered calls on this stock and exiting the position before the market closed on the 18th?
First of all, the stock itself can be volatile leading up to an ER. Also, one of the great advantages we have as CC writers is the devaluation of the option premium due to erosion of time value.
If the stock drops in value during the contract cycle, the option premium will also fall, thereby allowing for a profit on the option component when we close B-T-C. When there is an upcoming ER, volatility implied volatility or IV can be high. This is one of the factors that influences time value. Rumors and talk about the ER can keep that option premium from devaluing until after the event ER. If the stock has declined in value or we want to close just prior to an ER and we want to close our option position to then sell the stock we may be taking a loss on the option as well or at least not in as good a situation as we would be had there been no ER.
If the ER was early in the contract cycle, we can let it pass, wait for any volatilility to subside, and then enter our position if we still like the stock. When we have a situation where we sold an option and the strike price is O-T-M higher than the current price of the stock , we must allow the option to expire after expiration Friday. Here, we cannot take action until the following week. Now, we have no option obligation and still own the stock and are free to sell another option or sell the stock.
What Brian correctly did was to execute an exit strategy, where he closed his current position and then immediately put his cash to work by opening a new one.
Many times that new position is for the same contract cycle. Keep your money working at all times. Be a tough boss…no holidays, no sick days! Recently reported a strong ER with increased sales expectations. Check to see if this equity deserves a spot on your watchlist. Any thoughts on where I can put this money to work? Hi Alan, Some confusion here — went to look up RL. Hi Alan, Well, this follower of yours can be said to do things backwards. I first bot, a few months ago, your second book, the Exit Strategies book, a wonderful work.
I did the same with BUCY today- nice work. The answer is YES. Here is where a quality watchlist of equities becomes your best friend. Once again, an I-T-M strike is the safest since there is little time for exit strategy repair if the stock heads south. A-T-M strikes will generate the greatest time value and O-T-M strikes can generate some option profit with upside potential. With a quality watchlist you WILL find opportunities that are right for you based on your risk tolerance and outlook for the market.
My next journal article will discuss an SEC regulation that puts extra cash into our pockets. Mail will not be published Required. Optionally add an image JPEG only. February 8, 9: March 2, 6: The Blue Collar Investor Learn how to invest by selling stock options. Non-Standard Options- What they are and why we should avoid them. Options Chain with NS Options. WIT as of About Alan Ellman Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing.
He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.
Connect With Us To send us an email, contact us here. Additionally you can also find us on any of the social networks below: My attitude til now on those has been that if it looks too good to be true, then it probably is!
Thanks just getting started Frank. Early morning check of some of the stocks YOU have been talking about on this site: Joshua, Of the three dropdowns, the SmartSelect is the most important. Hi Alan… What do you mean by premium membership? Alan, Thanks for the great books. What would you do? Please share your math, I am still learning. Dave, For the past eight months the BCI team has been developing a premium site that will provide its members a weekly screening of all IBD stocks.
It will also provide information on the following: ERs Same Store Sales Trading volume Chart trends Technical analysis with comments In addition, it will show you the same watchlist that I use for my stock selections along with this additional information: Sector Industry Beta Industry Rank We are also developing some great ideas for future expansion of this site.
This site will continue to welcome and appreciate all members both general and premium. Phil, I will respond to your question with the current option chain figures at the time of this post with these caveats: Here are the current calculations: The non-standard expiration cycles are also less active.
The graph showed that the slippage was the greatest in the SPY longer term expirations as well in the non-standard expirations. Market Measures from September 24th, Options Jive from December 21st, Market Measures from April 5th, Watch this segment of Options Jive with Tom Sosnoff and Tony Battista for the important takeaways and a better understanding of liquidity and your slippage costs amongst the different expiration cycles.
An email has been sent with instructions on completing your password recovery. Register today to unlock exclusive access to our groundbreaking research and to receive our daily market insight emails. Beginning of Segment Discussion What is a Bid-Ask Spread? Liquidity in Non-Standard vs.
Options involve risk and are not suitable for all investors.
How Does Adjusted Options Look Like?
In the above hypothetical example, one contract was a standard options contract, the other non-standard. The standard contract represents shares of the underlying, while the NS contract does not. As an example, when Bank of America (NYSE: BAC) took over Merill Lynch, the owner of shares of Merill received 85 shares of BAC stock plus $ in cash. European options are different from American options in that they can only be exercised at the end of their lives on their expiration date. The distinction between American and European options has nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type. What are non-standard expiring options? "Standard" expiring options at Schwab are classified as options that expire on the Saturday following the third Friday of the month, and have a .