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Author Topic: Does anyone play options?
stocktrader22
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I'm a newbie, but after witnessing some expiration day action, I have a few strategies I would like to discuss...anyone interested?

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bilgert
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Go for it. Playing options near the expirattion date is highly risky and volatile, but it can work some magic. I did it recently with ETFC and for smaller gains in YHOO and WB.

I honestly thought that my ETFC options were gonna vaporize before today. That one I lucked out on.

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Machiavelli
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I haven't traded in Options but will do so sometime in the future.. hopefully near future... right now ETF's are interesting me... as well as FOREX... if anyone is interested in Forex you can learn about it on this site:

www.babypips.com

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Let the world change you... And you can change the world.

Ernesto "Che" Guevara de la Serna

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stocktrader22
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do you ever play options at expiration? I mean I'm a newbie, but see some interesting things. Example...I was watching the July $40 put today COF, it opened at .05 since it appeared worthless but then when COF dropped to $40.58 it went up to .60 I believe. That is a 1000X return. And isnt the downside risk at .05 basically just what you invest going worthless if you buy the put.

Also in terms of shorting calls, do you ever do that the day before expiration so you can cash in on time decay?

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bilgert
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quote:
Originally posted by stocktrader22:
do you ever play options at expiration? I mean I'm a newbie, but see some interesting things. Example...I was watching the July $40 put today COF, it opened at .05 since it appeared worthless but then when COF dropped to $40.58 it went up to .60 I believe. That is a 1000X return. And isnt the downside risk at .05 basically just what you invest going worthless if you buy the put.

Also in terms of shorting calls, do you ever do that the day before expiration so you can cash in on time decay?

That's actually only a 12x (1200%) return,which by the way is PHENOMENAL. I don't recommend (or more relevantly, I don't) buy options the day of expiration. It's just too risky for me. I prefer to buy maybe at latest a week before the expiration date to give me some wiggle room. The time rate is favorable, so you can snap up a bargain, but at the same time it allows for some movement.

There is a lot of volatilty on the day of expiration because a lot of people are dumping their position. If you happen to have a day like COF on the day of expiration or GOOG about 2 months ago where some significant news moves the PPS then you're golden but more often than not, you leave yourself exposed to high risk.

I don't short calls; it's an interesting way to play, but it's too risky for my blood.

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metal1
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yeah, there is no magic with options. the percentage gains can be good and your losses are often 100% because of what you just said. what if COF went up instead of down? you would have had a 100% loss on the position. is some ways options are harder to trade because you have to be right at the right time. a stock you can hold for a comeback, an option expires worthless and you have no opportunity to make it back.
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stocktrader22
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How about shorting a call, example...lets say I shorted CELG Jan 2009 $100 call for .90 a contract.
Lets say January comes around and on its expiration day the stock is trading like at $80 so there is no chance it hits that $100 call, so do I basically make .90x100 for each contract in profit?

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stocktrader22
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anyone know the answer to my last question?
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metal1
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yes, the option would expire worthless and you keep the premium from your short position. of course shorting calls puts you at theoretically unlimited risk. if the stock got bought out for 200 the call would be trading around 100 and you would have to cover at 100 or deliver the shares
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stocktrader22
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Okay, so why don't people just short calls really high. For example financials that are in the garbage such as mer, why not short the call for august $42.50 call

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stocktrader22
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Also lets say I shorted a call way out of the money at .10...on expiration day if it doesnt get to that share price it needs to, and it becomes worthless, .00 how do I buy it back to close the short call if there is no bid!

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Machiavelli
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You need to get the book :

Getting Started in Options by Michael C. Thomsett

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Let the world change you... And you can change the world.

Ernesto "Che" Guevara de la Serna

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metal1
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you don't buy it back. the position automatically closes at expiration if you don't cover before then. you are asking some really basic options questions. you should probably do some book or online reading about options before asking a bunch of questions here. just to answer your other question why not short MER Aug 42.50 calls. you would get .05 per contract selling calls right now. your upside is .05 and your downside is again theoretically unlimited. some people do it and scalp .05 here and there. you get burned once though and you could be done. lots of risk for little profit. there is plenty of info online and in book form. do lots of reading. maybe start with the book Mach recommended


quote:
Originally posted by stocktrader22:
Also lets say I shorted a call way out of the money at .10...on expiration day if it doesnt get to that share price it needs to, and it becomes worthless, .00 how do I buy it back to close the short call if there is no bid!


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stocktrader22
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quote:
Originally posted by metal1:
you don't buy it back. the position automatically closes at expiration if you don't cover before then. you are asking some really basic options questions. you should probably do some book or online reading about options before asking a bunch of questions here. just to answer your other question why not short MER Aug 42.50 calls. you would get .05 per contract selling calls right now. your upside is .05 and your downside is again theoretically unlimited. some people do it and scalp .05 here and there. you get burned once though and you could be done. lots of risk for little profit. there is plenty of info online and in book form. do lots of reading. maybe start with the book Mach recommended


quote:
Originally posted by stocktrader22:
Also lets say I shorted a call way out of the money at .10...on expiration day if it doesnt get to that share price it needs to, and it becomes worthless, .00 how do I buy it back to close the short call if there is no bid!


Sorry man, I've been here for a long time playing equities and just looking into options, figured people here might know a thing or too and could help give back. Anyways, the reason I guess people dont short the .05 call is because at least for me the comissions are very expensive for each option and you get screwed that way.

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metal1
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yeah, you would have to sell a pile of calls to make any money and then your risk goes sky hi. if you google 'how to trade options' or something similar you will find plenty of good info.
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stocktrader22
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Thanks, well optionshouse has $9.95 set fee for unlimited options, so most likely I'll find a stock I'm very bearish about, and then short the calls out of the money to collect my premiums. excited

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PCola77
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22, the simple answer to your question is that if it seems too easy to be true, it's probably not true. Same with everything else. You make 1200% on your COF put, but you get that kind of return less than 1 out of every 12 times, so the other 12, 15, 20 etc., times, you lose 100%. You may be lucky and hit a couple of thousand-percenters, but it would be just as lucky as someone buying a bunch of .000x stock and having a couple of them run.

For the record, I don't play options because I don't understand the nuances, and have all faith that I would quickly lose way more than I should even be risking. Someday i will take the time to learn them, but too much going on right now to spend the time.

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Machiavelli
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quote:
Originally posted by metal1:
there is plenty of info online and in book form. do lots of reading. maybe start with the book Mach recommended



I got the feeling that the OP was ignoring my posts and wants to jump into options headfirst... but thanks for plugging my posts Metal... [Big Grin]

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Let the world change you... And you can change the world.

Ernesto "Che" Guevara de la Serna

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bilgert
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Options for Dummies is another great little book. Very readable. I keep it on my sh|thouse hamper to read when I get tired of looking at old Sports Illustrated or US Magazine.

In lieu of shorting the call stock, you might want to consider just buying a long put in cash. That way your risk is fixed.

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