18:54 chatter: I have a dumb question when do you have to sell options? Is the second to last thursday of the month?
18:54 junky: you can sell options at any time.
18:55 chatter: I meant by when do you have to?
18:55 junky: u mean by expiration,
18:56 chatter: Yes
18:56 junky: even at expiration there are no requirements that you HAVE TO sell an option.
18:56 chatter: wont it expire if I dont?
18:56 junky: if its in the money at expiration and you do nothing you will just receive long or short stock come monday morning.
18:57 junky: if its out of the money, they will expire worthless. and no further action required.
18:57 chatter: ok but for this month experation I have till this thursday?
18:58 junky: what stock?
18:58 chatter: pot
18:59 junky: you had till Friday close.
18:59 junky: how much in the money (ITM) was it.
18:59 chatter: so since it was in the money then I jusr recieved the money so to speak?
19:00 junky: was it calls?
19:00 chatter: yes
19:00 junky: and did it finish ITM?
19:00 junky: what strike was it.
19:01 junky: holder of calls, have the right to buy stock at the strike price.
19:01 chatter: 190 or 195
19:01 junky: so at expiration, if the holder of itm calls do nothing, u are basically indicating that you would like to have stock delivered at the strike price.
19:02 junky: so come monday morning x number of long stock will appear in your account.
19:02 chatter: so now what do i do?
19:02 junky: how many calls
19:02 chatter: 5 contracts
19:02 junky: so 500 shares of pot.
19:03 chatter: yes
19:03 junky: you have 98k in acct to hold the stock?
19:03 chatter: no
19:03 junky: then just sell it after mkt opens.
19:03 junky: so you dont have to meet margin call.
19:04 chatter: ok so then everything is ok?
19:04 junky: you may want to contact the trade desk b4 the mkt opens, and I emphisize B4.
19:04 junky: bec. your acct will say something to the effect of insufficient funds come monday morning.
19:04 junky: dont freak out.
19:04 junky: just work with the desk.
19:05 chatter: ok it already does
19:05 junky: oh ok.
19:05 chatter: thats what freaked me out
19:07 chatter: I wont lose any money on this will I?
19:07 junky: depends.
19:07 junky: your stock cost basis is the strike price + whatever u paid for the calls.
19:07 junky: so it depends on where the stock opens monday morning.
19:08 chatter: got it. So I may loose a little depending on where it opens
19:08 junky: right.
19:08 chatter: got it thanks for the help.
Showing posts with label expiration. Show all posts
Showing posts with label expiration. Show all posts
Sunday, May 18, 2008
Saturday, March 10, 2007
AGIX interesting trade for April
AGIX news pending, currently trading around $9 a share.
Here is the risk profile of this interesting trade translated into plain English:
This trade has the potential of making at least $1550 if AGIX stays anywhere above $3.5 a share by April expiration. That's roughly a 25% return relative to the amount of money tied up ($6000 required). I estimate around $70 in entry commissions, and potentially no exit commissions.
This trade also has the max potential of making $4000 if AGIX landed around $5.0 a share by Apr expiration. The probability of this happening is obviously lower than the $1550.
No trade would be complete without discussing the risks. Losses will occur if stock plunged below $2.25. The max risk is around $3500 IF the stock went to $0 (and u did nothing whatsoever).
The implied volatility (uncertainty premium, due to news pending) for the options are absolutely fat. Here are the exact details for the trade:
Sell to open qty 25 of the April 5 strike put options
Buy to open qty 10 of the April 7.5 strike put options
Not too bad is it? Lets break down the above two transactions another way:
step 1. Sell to open qty 10 of the April 5 strike puts
step 2. Buy to open qty 10 of the April 7.5 strike puts
(step 1 and 2 basically make up plain jane vertical spreads)
step 3. Sell to open an additional 15 of the April 5 strike puts.
Now, what I just described with all the above, can be summarized with the risk graph below.
Would you do this trade? (click picture to see larger version)
Here is another variation. Here we have a potential of 170% return.
Total capital required to do this trade is only a whopping $450 (to make $800!!!)
The only difference here is to add qty 15 of the April 2.5 strike puts to cap the max risk on the downside.
Would you do this trade?
Trading options may involve significant risk of capital. Trades posted here should be considered for informational or entertainment purposes only and not actual trading advise. Please consult your licensed broker or advisor b4 placing any trades.
Here is the risk profile of this interesting trade translated into plain English:
This trade has the potential of making at least $1550 if AGIX stays anywhere above $3.5 a share by April expiration. That's roughly a 25% return relative to the amount of money tied up ($6000 required). I estimate around $70 in entry commissions, and potentially no exit commissions.
This trade also has the max potential of making $4000 if AGIX landed around $5.0 a share by Apr expiration. The probability of this happening is obviously lower than the $1550.
No trade would be complete without discussing the risks. Losses will occur if stock plunged below $2.25. The max risk is around $3500 IF the stock went to $0 (and u did nothing whatsoever).
The implied volatility (uncertainty premium, due to news pending) for the options are absolutely fat. Here are the exact details for the trade:
Sell to open qty 25 of the April 5 strike put options
Buy to open qty 10 of the April 7.5 strike put options
Not too bad is it? Lets break down the above two transactions another way:
step 1. Sell to open qty 10 of the April 5 strike puts
step 2. Buy to open qty 10 of the April 7.5 strike puts
(step 1 and 2 basically make up plain jane vertical spreads)
step 3. Sell to open an additional 15 of the April 5 strike puts.
Now, what I just described with all the above, can be summarized with the risk graph below.
Would you do this trade? (click picture to see larger version)
Here is another variation. Here we have a potential of 170% return.
Total capital required to do this trade is only a whopping $450 (to make $800!!!)
The only difference here is to add qty 15 of the April 2.5 strike puts to cap the max risk on the downside.
Would you do this trade?
Trading options may involve significant risk of capital. Trades posted here should be considered for informational or entertainment purposes only and not actual trading advise. Please consult your licensed broker or advisor b4 placing any trades.
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