New and Trading Options

Discussion in 'New Member Introductions' started by FutureNvrEndz, Mar 17, 2018.

  1. FutureNvrEndz

    FutureNvrEndz Member

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    I got interested in investing though precious metals, mostly physical bullion and junk coins as I carried a pretty good stack into 2011. I did some reckless stock trades with some of that $ and gave up pretty quick.

    I didn't really think about trading the next 7 yrs, though the markets have gotten my attention again finally.
    I started again in January with my old account basically just doing some degenerate trading and got lucky with some long puts on Groundhog Day and a few more after that. Then I lost all but $600 of gains (i transferred original capital out!). It's amazing how your value of money becomes jaded so quickly when it was 'free'.

    I would have had a different approach if I had approval for short legs. Luckily I was able to get a higher approval elsewhere. Ive been using vertical credit spreads on SPY and a handful of stocks, and have 1 week old iron condor that"s still right in the middle. I'm also interested in diagonals and calendar spreads as they seem like a great source of low-key income, though far above my skill level now.

    My biggest impediment I think is that I'm limited to smart phone during market hours most of the time. I'm sure some you do that too. I use a desktop to research at night and save any trades i might want, adjust on the gly. I guess this is a pretty big disadvantage on short term trades.


    I have a few basic questions if you don't mind. Sorry if any of this is super obvious. I'm way behind with lots of stuff!

    1) How much should I worry about early assignment? I realize an ITM option with little time value is most at risk. Do you normally close before last week of contrat? What happens if i dont have the cash in my account to cover?

    2) Why does a SMA change value when I change the time frame of the chart? My understanding is that 200 days is 200 days whatever part of the chart im looking at. Am i doing something totally wrong here?

    3)I'm trying to keep positions as near as possible 3%. Given my account size ($3.5k), at that level the commission is taking anywhere from 15%- 35% of the profit :eek:, or adding maybe 50% a conservative loss. I have free trades for another month but that seems like a major consideration.
    How much loss to commission as a percentage of P/L do you see as worth it? Or do you not look at it that way? Am I too broke to complain?




    Thanks for your replies and all the good content here everyone!
     
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  2. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

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    Hiya, and welcome to the forums. There are a few folks around here who trade in options, and I hope they chime in here. I've been trading options over 20 years and will have a go at your questions from my perspective.

    Early assignment is always a risk, and the times I expect to get assigned early almost never happens and when I think there's no way I will get assigned, I end up getting assigned. I've even had ATM options assigned 6 months out from expiration, usually on low-float (open interest <100).

    Some folks have a rule about closing a contract when they hit 70-80% of maximum profitability, no matter how far away from expiration. I personally play each option position by feel and make adjustments or close out entirely on the basis of the underlying's technical analysis and gut instinct. This is not a replicable recipe for success, but it's one where I sleep pretty well at night.

    If you sold a put and get assigned early and do not have sufficient funds, your broker will likely purchase it at the strike price on margin and then, depending on how much of your margin purchasing power gets used up, could very well turn around and hit you with a margin call or possibly make the decision for you and sell it at current prices. If you are in a spread, and think a higher strike price put you own would be used to cover the assignment (that is, hedged), it's best to check with your brokerage. Some (most?) brokerages don't automatically assume you want to cover your short option with your long option in the event of assignment unless you confirm with them in advance that is what you want. Check out this article for some more "what ifs."


    Hmmm, dunno. I generally use stockcharts.com and get consistent SMA data at any time frame.


    Multiple leg positions, like condors, will generate a lot of commission, especially if you leg into or out of them. I personally look at total return (or potential return) with commissions included as a factor before entering the trade. Everybody's mileage will differ on what is acceptable, but generally if you are finding yourself waving off what otherwise look like good trades, I would suggest the possibility of one of three things is at play: (1) you need to shop around for a brokerage with better commissions; (2) you need more cash on hand in your account so you can scale up the position/trade sizes; and/or (3) the profit potential on the trade isn't as great as you think it is. That third item hints at the holy grail for all of us option traders: what of the myriad tools (deep knowledge of the underlying market, the associated option market, underlying and option volatility, the greeks, etc.) should one leverage to decide on a position with good profit potential? Ha ha! In my case, it's a life-long learning curve that seems to also always be a moving target.

    Good luck!
     
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  3. FutureNvrEndz

    FutureNvrEndz Member

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    Very helpful; Thanks.


    The higher priced Put would have to be exercised, or the cash sale is sufficient?
    Your right though, I will message them to make sure they can liquidate longs to meet assignments.
     
  4. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

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    I honestly don't know what your broker would do. For puts you own, I think YOU generally have to give the command to exercise the long put. I generally cash-hedge my written puts, even in spreads, so the brokerages I use for options (TD Ameritrade and ALLY) have settled an assignment with my cash rather than my hedge option. Unless I specifically call them up and tell them in advance to do otherwise.
     
  5. FutureNvrEndz

    FutureNvrEndz Member

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    Haha yes. I'm holding the short end of the see-saw on all those things unfortunately. I'm like a bootleg Martin Eden but 30 IQ points dimmer, but I'm learning!
     
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  6. Onepoint272

    Onepoint272 2019 Stockaholics Contest Winner

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    Simple Moving Averages, or exponential moving averages or whatever, use the number of periods you specified. On a daily chart a 200-period SMA is a 200-day moving SMA. When you change the time frame to weekly periods then it is a 200-week moving average (equal to a 1000-day SMA).

    If you want the equivalent of a 200-day MA on a weekly chart you'd use the 40-week MA (40 weeks x 5 days/week = 200 days).
     
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  7. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

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    Absolutely! I thought @FutureNvrEndz meant a 2-month DAILY chart versus 6-month DAILY chart, and so on. My bad....
     
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  8. FutureNvrEndz

    FutureNvrEndz Member

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    oh yeah, of course that makes perfect sense, Thx 1.272!
     
  9. OldFart

    OldFart Well-Known Member

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    @FutureNvrEndz
    Hello and welcome.

    For USA options, most brokers have a one or two pennies ITM for assignment on expiration. Most will also close your position if they see that you do not have enough in your account for assignment. Really depends on your broker. You should contact them.

    This is different for European options. If you are trading European options, they can be assigned at any time, from what I've heard. Not 100% sure on that.
     
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