Options and Derivatives

Iron Condors

dmrobelen — Thu, 20 Aug 2009 11:15:14 GMT

Writing Condors on stocks judged unlikely to move significantly either up or down offers the potential to generate attractive income returns with measurable risk. Finding the better opportunites and analyzing the prospects of meeting basic screening criteria can be time-consuming. Success in achieving pricing objectives on the underlying call and put spreads can prove maddening since these move in opposite directions. Skill in reading and interpreting technical charts is a must! Would like to hear from anyone who has had success in employing this strategy in different market conditions over some period of time.

How do I begin Options Investing...

mpretto1 — Fri, 03 Jul 2009 17:10:59 GMT

I've read just about every guide of Options Investing. All the particulars ie. Greeks, Risk Management, Strike Price, Strategies ect.) However, how to start investing in Options is not address anywhere I looked. What, how, and where do I go as a beginner to start investing in Options?

SYK

docstrade — Mon, 05 Oct 2009 19:03:35 GMT

Since the market has had a pull back over the last week would now reccomend purchasing the calls for SYK and if so at what price?

Jeff

What are the mechanics of buying a put?

Chicago Bill — Mon, 07 Sep 2009 21:38:46 GMT

That is, how can a put on the market, say the Wilshire 5000, be bought either as a straight put or within the context of a fund, and what are the put or fund symbols and with which entities can I place them? Vanguard?

options brokerage?

Anatole — Thu, 17 Sep 2009 18:04:40 GMT

Does any one trade options, I assume answer is yes because this is options forum? What is your favorite options brokerage? Any particular reason you like your options broker?

Two lowest fees brokerages I have found are:

Options house : Options house seems to have lowest fees and this is the only one I know who does not charge trade by per contract. Hypotheical question: Since they only charge by per trade, can one buy options in 100s or 1000s per trade as a practical matter?

Interactive brokers: Trade cost is per contract. They seems to more geared towards large and very active traders.

covered calls and capital gains

pgm8693 — Wed, 02 Sep 2009 16:09:43 GMT

A few years ago, I had a position in Apple that I wanted to liquidate. Sure, I could have done better if I had held, but I had already doubled my money and it was getting to be too pricey for my tastes relative to earnings, etc. I had held Apple before and ridden it down and up.

Rather than just selling, I wrote in the money calls for about four or five months, until there was an exercise.

I'm looking at the same situation now. I have unrealized long term capital gains on Chevron (CVX) and want to take that money and put it in an energy index. The difference this time is that Apple was in my SEP-IRA and the CVX is in my taxable account.

Here's the question: from a tax perspective, is it better just to sell the position and pay the taxes, or does it make sense to write at or in the money until the calls are exercised?

Thanks.

pgm.

Writing puts on NYB

wmuiInvest — Sat, 05 Sep 2009 13:57:21 GMT

Hi Phil,

I saw your recent video recommendation to write puts on New York Community Bancorp.

1) Which expiration do you recommend? the Jan 2011?

2) Has the chance of a dividend cut increased since March when you originally made the recommendation?

Thanks in advance for the help.

zion

chuck2187 — Wed, 26 Aug 2009 18:48:17 GMT

M*Philip - time to take the profit on the $20 call and play out the $5 put?

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chuck2187 — Mon, 17 Aug 2009 15:50:00 GMT

a nice profit so far - buy back now at 280 per contract or ride it another 17 months?

Questions on covered calls

Rashid — Sat, 23 Aug 2008 11:38:48 GMT

I want to do a Buy-Write on a stock. So I want to buy say 100 shares of X at price of $45. And at the same time sell a call with strike of $46 for $4. Let's get commissions out of the way for easy calculation.

My cost to own 100 shares of X = $45 * 100 - $4 * 100 = $4100.

Questions

1) When I get called, I have to deliver my 100 shares to the caller at $45. So I get my $4500 back. So I made $400 on the premium I collected. Is this correct?

2) Can I get called even if stock price never reaches the strike price of $46?

3) Can I get called at any point before expiration or only at expiration?

4) While I would think it is foolish for the call buyer to ask for delivery of the stock of the stock dropped to say $42, the buyer of the call may simply sell the call to someone else since it has dropped in price and he wants to protect his losses. In that case, am I involved in this in any way? Or does the caller sell his depreciating call to someone else in the market and I assume I don't even care any more who actually holds the call I originally sold?

5) Same scenario as above, but for some reason the call buyer actually wants delivery of the stock even when price is $42. I will still only have to honor my promise of delivering stock at $45. So I still get $4500 for my stock and still will have made $400 on the premium I collected. Is this correct?

6) After I execute my Buy-Write at my broker, do I have to do anything actively when my stock gets called? Or does the broker take care of delivering my stock to the caller, charging me commission and then simply notifying me of it? Just want to make sure I cannot lose money if I get called because I forgot to do something.

I'm simply trying to see if I can generate some income better than what I can get on a CD at my bank. I realize that if the stock drops in price there is no surefire protection for my money beyond the $400 I collected as premium, i.e. beyond $41 for the stock price going down. I also realize that I don't think I'll be to collect that much premium - $4 - on a strike price just $1 away from the price I paid. But I just wanted to make sure I got everything right before I actually experimented a little. Don't want to lose my shirt just because I misunderstood how things worked.

Thanks in advance for any help.

Options Prices and Fees

Oneman — Sat, 25 Jul 2009 16:27:44 GMT

Hello,

Thanks for your answers for my previous questions regarding risk reltaing to the options.

I consider buying a few options and there are few details which I would like to understand in advance:

1. Is a single call option contract usually exercisable into a number of shares of the target company or only for one share?

2. If a single option contract is usually exercisable for a number of shares, how can I exactly know for how much shares a certain option contract is exercisble for?

For example, the relevant details in Morningstar indicate that a 47 call option of PM named "PFYHA" is priced around 1.23. How can I know if such price relate to a single option which is exercisable for a number of shares or for only a single share of PM?

3. What is considered as reasonable fees for buying a call option? I got the impression that brokers tend to charge fixed price of a few dollars on buying a single option contract (such as 2$), and this seems to be much more expensive than fees relating to stocks. Are there any customary maximum fees in this regard? Are this fees relatively high because each option is exercisable into a number of shares?

As to my previous example regarding PM, it sounds unreasonable for me that such contract is exercisable for only one share of PM, and that it would cost me 1.23$ plus 2$ fee to buy such an option.

Thanks in advance for your answers.

Sell calls against your long SNDK Call

psrds — Tue, 16 Jun 2009 20:04:15 GMT

You have bought a call with so much time, it would seem you could sell something like strike 20 Oct calls for .75 and then re-do depending on the underlying move. It's been a while since SNDK was at 20.

Jan. 2011 call (LEAP) at 50 on Stryker

persist — Fri, 07 Aug 2009 00:43:34 GMT

Not too long ago I bougt the Jan. 2011 call (LEAP) at 50 on Stryker. I'm fairly new to options investing having limited myself to selling covered calls until this purchase. I was glad to get some positive reinforcement in the form of Erik Kobayashi-Solomon's 8-3-09 article about buying the Jan. 2011 call (LEAP) at 45 on Stryker.

First Question: Erik mentions in the article that the 50 call may not be a bad investment either, but he's the pro and he chose to invest in the 45 call. At this point my call is up just a bit so I could sell it and buy the 45 call, but it would just about double the cost of my investment. Of course, with the greater cost comes a lower probability of losing the money I've presently invested if the the stock fails to hit $52.15 (50 strike price + 2.15 cost of option) by January, 2011. Any thoughts among you reading this regarding whether I'd be wise to sell the 50 call at a small profit and move to the 45 call now or stick with the 50 call?

Second Question: In the article Erik mentions a couple of times his 3 year time horizon, but the option expires in around 18 months. I don't understand - what am I missing?

Any thoughtful comments appreciated. Thanks.

Tom

Two options at same strike and date?

GentleGiant — Mon, 20 Jul 2009 22:50:30 GMT

Often I see that there may be two or three traded options on a stock with the same strike and date, and they're priced quite differently.

As an example, Schwab currently shows 3 January 2010 puts for Cemex (CX) shown with bid&ask prices:

CXMC 5.80 6.10
CXKMC 5.50 5.80
KYHMC 5.20 5.40

What's the difference between them? Schwab just notes some as "special".

Rolling over a covered call position on an appreciated stock??

persist — Fri, 07 Aug 2009 01:24:38 GMT

I sold a covered call on Visa (V) for August expiration with a $65 strike price for a price of $1.40 so it subject to my stock is subject to being called away over $66.40 in a couple weeks when the option expires if the price stays above that level - it closed today at 68.68. The MS fair value was increased from $76 to $82 recently (well after I sold my call). I'd like to keep the stock and avoid losing any potential gain (e.g., if its $68.40 at expiration I lose $2.00/share minus my sale price of $1.40./share for a net loss of $0.60/share). Not a bad opportunity cost to sustain if those are the actual numbers, but my greater concern is if the stock goes to a materially higher price in the next couple weeks - say $70 or $75.

I had read an article about rolling over option positions, but now can't seem to find it. Perhaps it was in a different scenario than my covered call situation. I apologize in advance to you experienced options investors (I'm a novice) if this seem like a dumb question, but my question is this: Is there a low or no risk way to trade up to a call with a higher strike price.

Any thoughtful comments would be appreciated. Thank you.

Tom

Options Charts and Tools

JDPInvestor — Thu, 16 Jul 2009 23:33:22 GMT

I can't seem to find any option ticker charts to track the changing price of an option over a certain time period or to compare one option ticker with another or the stock ticker.

Does anybody have any suggestions of where I could find this tool or any other useful tools for valuing and evaluating different options and option strategies?

Thanks

What fraction of options are exercised (vs closed for a profit)

GentleGiant — Mon, 08 Jun 2009 16:43:50 GMT

If I've sold options that are in the money as expiration is getting near, what fraction of those contracts will be sold by the holder (closing the transaction at a profit) or exercised?

I've sold some covered calls (Apple at 175, Cemex at 12) and cash-covered puts (Apollo at 65 and 60). My feelings are that I'd love to buy/sell these stocks at these prices. If these are in the money as expiration nears, how likely are they to be executed if I leave them to expire?

I'm just starting with options and I've come to view these calls and puts as similar to limit orders to (respectively) sell and buy, juiced by my income for selling the options. I'm just kind of afraid I won't get my desired results if they're sold rather than exercised. I suppose if I get a few days past expiration without a notice of exercise I could buy/sell things on my own at then current prices and get the same effect as their being exercised, right?

Implied Volatility vs Morningstar Fair Value Uncertainty

Spider67 — Mon, 20 Jul 2009 20:33:49 GMT

I'm trying to get a handle on the relationship between Morningstar's FV Uncertainty Rating and a stock's volatility. For example, I would consider writing a covered call when I see that the "implied volatility" is greater than volatility indicated by the FV Uncertainty Rating.

Does anyone have a sense of the relationship? So far I have guessed that a "low" FV Uncertainty would indicate ~25% volatility and a "medium" FV Uncertainty would indicate ~40% volatility. I haven't made any guesses about higher ratings.

Using those guidelines, I would consider writing a call for a "low" FV stock, e.g.if the call's "implied volatility" were 30%, but not if it were 20%.

Capital gains tax accounting for options and derivatives transactions

googlie — Sun, 19 Jul 2009 07:10:38 GMT

Hello,

I have been investing with options for over 4 years now – mostly to augment my investment portfolio returns via income based option strategies. I trade options mostly from my taxable brokerage accounts.

When it comes to taxes, over past few years I have tried multiple sources for help with my schedule-D preparation- starting with TurboTax, H&R blocks to CPAs and custom software. I found that none of these tools do a thorough job in calculating cost basis and capital gains calculations for options, straddles and other advanced trades.

I wanted poll all other option investors to understand if this a prevalent problem when it comes to trading options or is it that I simply do not know the right software / service currently available in the marketplace.

How do you manage your taxes for options?

Thanks

Citigroup Preferred stock conversion

BillinNC — Fri, 17 Jul 2009 15:27:22 GMT

Citigroup has an exchange offer expiring on July 24th offering holders of specfic preferred issues to exchange them into common stock. There are three issues which all sell at approximately $19.50 (C-G, C-M, C-P) ,and can be exchanged for 7.307 shares of Citigroup common stock. At Citi's current price, that works out to an approximate discount of 12.5%. If I understand the exchange offer, all of these issues will be exchaged in full (not pro-rated)

Obviously, Citi's stock could decline between now and then, but a 12.5% discount for a one week period seems like an interesting opportunity. Any thoughts out there?

Bill

Keeping Track of Options with Moringstar

PAPROS — Sun, 17 Feb 2008 14:08:44 GMT

Hi,

I tried to add options to my portfolio the other day and was not successful. On a brokerage site usually one uses a hyphen in front of the option to put it in a portfolio. I tried this on Moningstar and it did not work. Is ther a way to keep track of options one owns using the Morningstar porlfolio feature.

Thanks,

Paul

Put option as insurance - is it guaranteed?

Oneman — Sat, 27 Jun 2009 20:33:59 GMT

Dear all,

First I must say that I am impressed by the very sound and professional approach toward investing in options and derivatives as is discussed in this forum as opposed to other discussion templates in the internet.

Now to my question: I would like to buy a put option as an insurance for a few of my long positions, but I am worried that when I want to exercise the option, the option issuer will not fulfill its obligation to buy my stocks at the strike price for different reasons such as insolvency, bankruptcy or just trying to get out of its obligations. I have three main concerns in this respect:

1. Financial Stability of the Issuer

Similarly to any insurance which I were to buy, I want to make sure that the option issuer's financial stability is appropriate with respect to its obligations, but how can I know who is the option issuer? Furthermore, can the issuer assign its obligations under the option to another entity? If the answer is yes, how can I be sure that when I want to exercise the option the other side will be able to fulfill the obligation to buy my stocks at the strike price?

2. Collateral / Guaranty

Are the option issuer's obligations guaranteed by any means? I have heard that there are clearance houses that exercise options throughout cash settlements which require the option issuer to deposit certain collaterals against its obligations, but I do not know how can I verify if and to what extent this requirement apply to the certain option I intend to buy.

3. Past Experience

Due to the past experience regarding the breaching by options issuers of their obligations, do I have any reason to worry? Is there any statistical data regarding the put option contracts which are being defaulted in each year?

Thanks in advance for your help.

City Group

Gonzalez — Sat, 20 Jun 2009 23:20:39 GMT

Applying Leaps to City Group:

Read:

http://www.marketwatch.com/story/citi-too-big-to-fail-will-hit-12-a-share-bove :

Essentially it says:
"Rochdale Securities analyst Richard Bove initiated coverage on Citigroup Inc. Friday, issuing a buy recommendation ... price target of $4 a share for City ... and estimated its stock to be worth $12 a share when earnings "normalize," he wrote."

I decide that in 18 months City will be 12 or above.

Order: buy to open

300 C Jan 2011 10.0000 call (OPR: VRNAB.X) @ 0.23$ or better GTC

Any suggestion?

What a professional would do for the maximum benefit and minimum risk?

unleaded options

brimstone — Tue, 23 Jun 2009 22:12:41 GMT

Where can I purchase unleaded options? I've looked at UGA but there is very little trading activity. Is there a higher volume etf out there?