# Long Call Options Question



## kenw232 (May 9, 2010)

Hello, I'm new to options trading and thought someone could clear this up for me. Am I allowed to "sell to close" a Long Call before the strike price is reached?

For example AAPL is at about 402 a share now in middle of May. I come in and buy 1 contract of "Jul 20th - $600.00 Strike" for .35 cents for a total cost of $35.

Say in June AAPL moves up to about 520 a share. Can I lock that profit in by selling to close the call now? Or do I have to wait until it hits the 600 strike price or until the expiry date on July 20 to find out what happens?

Thanks.


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## lonewolf (Jun 12, 2012)

Can sell it any time before it expires as long as the the market is open & or put in an order in to sell it while the market is closed to take effect when the market is open. Of course there has to be a buyer 

Time decay accellerates the closer the out of the money option gets to exploration.


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## humble_pie (Jun 7, 2009)

the good news is you can sell a long option any time you please. AAPL itself is about 453 right now btw.

the bad news is that, in june, if aapl stk shall have moved up to 520, the jul 600 calls will have not budged much. Time decay will have begun to erode their value. If you sell, broker commish will eat into any profit you might have (unless you're at IB.)

now lettuce suppose the ascent to 520 doesn't occur until july. Say around july 5-10. That jul 600 call might be .05-.11.

it would probably work out better if you were to buy a jan/14 call at a lower strike price & then commence selling the weeklies or the short-term monthlies against it. Those would be calendar spreads.


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## avrex (Nov 14, 2010)

Absolutely. You can close both your long call at any time before the expiration date. 

In fact, in your example, you will want to "Sell to Close" this long call well before July 20. On this date, this call will be worth zero. This is called a deep Out of The Money (OTM) call. There is a low probability of AAPL stock increasing by 33% to reach the 600 strike price in the next 69 days.

@kenw232, Are you trying to participate in a rebound in AAPL stock over the next couple of months, without utilizing too much of your cash?
If yes, then I would suggest a *Stock Replacement Strategy*. 

For this strategy you select a deep In the Money (ITM) call option. Perhaps an AAPL Jul2013 $400 call.

*Strategy Advantage.* Minimal cash outlay. You only pay $57 to hold an 'almost equivalent' amount of the underlying $450 AAPL stock.
*Strategy Disadvantage.* Risk. You are using leverage. If AAPL stock drops, you will lose a large percentage of your initial investment. One way to reduce your losses, is to implement a Bull Call Spread, as mentioned in your kenw232 Déjà vu thread.

In my example, you will also want to "Sell to Close" before the expiration date (as I'm assuming that you don't want to make the large cash outlay to actually purchase the AAPL stock). The idea is to benefit from a short term increase in AAPL stock, and not actually own the stock.


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## humble_pie (Jun 7, 2009)

horrors avrex. Why would anyone gamble $5,700 that aapl will rise over next 8 weeks? 

the OP was talking about gambling $35 plus commish ...


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## metatheta (Oct 1, 2012)

I have a TDW and IB account.

I don't understand why in TDW one has to specify explicitly "Buy To Close", "Buy To Open", "Sell To Open", "Sell To Close" for options trades. In IB it is all implied what you are doing based on your existing position.


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## humble_pie (Jun 7, 2009)

metatheta said:


> I have a TDW and IB account.
> 
> I don't understand why in TDW one has to specify explicitly "Buy To Close", "Buy To Open", "Sell To Open", "Sell To Close" for options trades. In IB it is all implied what you are doing based on your existing position.


but surely IB has a way to override its implied thoughts about one's existing position?

what happens when one pulls up one's existing long calls but one wants to buy more of em? does IB think one is going to sell?

PS theta well-founded hearsay has it that bad news is coming for tdw rrsps ...


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## avrex (Nov 14, 2010)

humble_pie said:


> Why would anyone gamble $5,700 that aapl will rise over next 8 weeks?


I was trying to surmise what the OP is trying to do.
If the OP is trying to participate in a rebound in AAPL stock over the next couple of months, then this strategy is valid (and yes risky)

If AAPL falls 13% or more by July 20, then yes, the OP would lose his entire $5,700.
If AAPL gains 13% by July 20, the call would appreciate to around $111 near expiration. A $5,400 profit.

It depends what the OP is trying to do. As long as everyone is aware of the risks involved.

btw @humble_pie, I agree with your advice to the OP.
Going further out in time to Jan 2014, rather than play with July 2013 is less risky.

The great thing about options, is that there are so many ways to play it.


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## humble_pie (Jun 7, 2009)

but avrex it's transparently clear what the OP was trying to do. OP is new to options (as in _very new_) & he innocently thinks jul 600 calls are cheap so they're worth a tickle. That's it. Nothing more to it.

let's not tempt em for $5700, they couldn't tolerate losing 5700.


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## avrex (Nov 14, 2010)

Yes, you are correct. We'll save the Options as a Stock Replacement Strategy for another day.

I guess the 35 cent option is one way to learn / get the feel of options.


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## metatheta (Oct 1, 2012)

humble_pie said:


> what happens when one pulls up one's existing long calls but one wants to buy more of em? does IB think one is going to sell?


I should have said that you need only to specify BUY or SELL in IB without specifying whether to OPEN or CLOSE. It is implied by your existing position if you want to open or close.


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## Squash500 (May 16, 2009)

avrex said:


> Yes, you are correct. We'll save the Options as a Stock Replacement Strategy for another day.
> 
> I guess the 35 cent option is one way to learn / get the feel of options.


IMHO the 35 cent option just seems like an easy way to lose $46.24 US dollars (based on a $9.99 + 1.25 contract commission). According to my calculations AAPL would have to go up approx. 33% in value by July 20/13 just for the OP to get in the money.

There must be an easier way for the OP to learn/get the feel of options?


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## metatheta (Oct 1, 2012)

Squash500 said:


> There must be an easier way for the OP to learn/get the feel of options?


I think that the best way to learn options is to paper trade front month options and also do earnings plays. Once you understand the P&L graph of an option trade, you can watch the 50 or so remaining days to expiration to get a feel as to how the strategy turns out. Front month options and earnings plays speed up the learning process.

The next step is to use real money and test how you handle your emotions during the duration of the trade.


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## Squash500 (May 16, 2009)

metatheta said:


> I think that the best way to learn options is to paper trade front month options and also do earnings plays. Once you understand the P&L graph of an option trade, you can watch the 50 or so remaining days to expiration to get a feel as to how the strategy turns out. Front month options and earnings plays speed up the learning process.
> 
> The next step is to use real money and test how you handle your emotions during the duration of the trade.


 Meta would the AAPL 22June13 460 Call with a premium of 11.90 be a good front month paper trade to track? I'm a total beginner in options but I watch the AAPL stock very carefully during market hours anyway.


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## metatheta (Oct 1, 2012)

I also think that a Jul 600 call for 0.35 is a lottery ticket. This shot is possible but less probable.

Here's a trade that is also a possible shot but more probable. Furthermore, it is half the risk.

The Jul 475/480/485 call butterfly can be bought at a mid-price of 0.15. Instead of risking $35 on a low probability Jul 600 call, this butterfly risks $15 with a higher probability requiring AAPL to be between 475-485 by July expiration. This is a mildy bullish assumption compared to an overly bullish assumption.

This butterfly is still a lottery ticket but it has a better probability. What would you rather play - Lotto Max or Lotto 6/49? Most people will want to play Lotto Max because of the bigger payoff. However, the probability in Lotto 6/49 is better.

I know that a butterfly is not a beginner strategy but I just want to illustrate that knowing and applying more advanced strategies can improve your probability and reduce your risk.

I think that those interested in options need to learn the advanced strategies sooner rather than later.


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## Squash500 (May 16, 2009)

metatheta said:


> I also think that a Jul 600 call for 0.35 is a lottery ticket. This shot is possible but less probable.
> 
> Here's a trade that is also a possible shot but more probable. Furthermore, it is half the risk.
> 
> ...


Meta I have to admit that this advanced trade is way beyond my capabilities---LOL. These are of course dumb questions: However how come the premium is so low.......15 midpoint=only $15 per contract. Do you mean that AAPL must close in that narrow range between 475-485 to make any money by July 20/2013? How much money could you make if AAPL does close within that narrow band?

Also would you have to pay 3 sets of commissions for 1 contract of AAPL. AAPL closed at approx. 453 on Friday. So would only have to go up by 5% to hit 475....which could happen? Sorry for all the questions. I'm going to google butterfly spread to learn more.


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## metatheta (Oct 1, 2012)

Squash500 said:


> Meta would the AAPL 22June13 460 Call with a premium of 11.90 be a good front month paper trade to track? I'm a total beginner in options but I watch the AAPL stock very carefully during market hours anyway.


The AAPL Jun 460 call has a max risk of 11.90 and a breakeven of 471.90. The only way to be a winner is for AAPL to be above 471.90 at expiration.

Here's a trade I would do if I am bullish - long Jun 450/455 call vertical for mid-price of 2.50 (buy 450C, sell 455C). Max risk is 2.50 and breakeven is 452.50. AAPL closed at 453. You are buying this spread for a discount to the stock. You are already ahead of someone who buys AAPL at 453. If AAPL stays at 453 on June expiration, the stock holder just breaks even while you make 0.50.

Which trade do you think is more probable of winning with a lower risk?
- long AAPL Jun 450/455 call vertical for 2.50, max risk 2.50, breakeven of 452.50, max profit 2.50
- long AAPL stock at 453, max risk $453, breakeven of 453, max profit unlimited
- long AAPL Jun 460 call for 11.90, max risk 11.90, breakeven of 471.90, max profit unlimited


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## Squash500 (May 16, 2009)

metatheta said:


> The AAPL Jun 460 call has a max risk of 11.90 and a breakeven of 471.90. The only way to be a winner is for AAPL to be above 471.90 at expiration.
> 
> Here's a trade I would do if I am bullish - long Jun 450/455 call vertical for mid-price of 2.50 (buy 450C, sell 455C). Max risk is 2.50 and breakeven is 452.50. AAPL closed at 453. You are buying this spread for a discount to the stock. You are already ahead of someone who buys AAPL at 453. If AAPL stays at 453 on June expiration, the stock holder just breaks even while you make 0.50.
> 
> ...


 The first one...with a max profit of 2.50 = $250.


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## metatheta (Oct 1, 2012)

Squash500 said:


> I'm going to google butterfly spread to learn more.


Please do this. There's a wealth of information out there compared to what I can give you. I just want beginners to be aware of the advanced strategies to increase their probability and reduce risk.

I have to admit that CNBC Options Action got me interested in learning multi-leg spread strategies.


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## Squash500 (May 16, 2009)

metatheta said:


> Please do this. There's a wealth of information out there compared to what I can give you. I just want beginners to be aware of the advanced strategies to increase their probability and reduce risk.
> 
> I have to admit that CNBC Options Action got me interested in learning multi-leg spread strategies.


 Thanks for your excellent help Meta. I realize that there's a wealth of information on the internet about Options. I'm going to have some fun with learning options...and will do it at my own slow pace--LOL.


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## kenw232 (May 9, 2010)

metatheta said:


> The AAPL Jun 460 call has a max risk of 11.90 and a breakeven of 471.90. The only way to be a winner is for AAPL to be above 471.90 at expiration.


You mean AAPL has to be above 471.90 at OR BEFORE expiration? Correct? If the strike price is hit before expiration it's just as profitable and the profit is realized at that time too. Can someone confirm this?


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## metatheta (Oct 1, 2012)

kenw232 said:


> You mean AAPL has to be above 471.90 at OR BEFORE expiration? Correct? If the strike price is hit before expiration it's just as profitable and the profit is realized at that time too.


The question is really about option pricing. If you buy the Jun 460 call for 11.90, what is certain is that it will be profitable if AAPL is above 471.90 at expiration. Between now and then, being profitable depends on the current AAPL price and the remaining time. For the option to maintain its value, AAPL needs to march up to the breakeven price while offsetting the time value decay. If AAPL runs up quickly early, the option will gain value and more than offset the lost time value. If AAPL doesn't rise or if it falls, the option will lose value because of the time value decay.

I've oversimplified option pricing but I encourage you to paper trade this and follow the value as AAPL changes price over time.


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## humble_pie (Jun 7, 2009)

metatheta said:


> Here's a trade I would do if I am bullish [in AAPL] - long Jun 450/455 call vertical for mid-price of 2.50 (buy 450C, sell 455C). Max risk is 2.50 and breakeven is 452.50


i like this. It's a partial inversion of your usual earnings strategies, theta? buy lo call sell hi call, very tantric ...

still, i'm staying off the aapl yoga mat for now


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## metatheta (Oct 1, 2012)

Squash500 said:


> However how come the premium is so low.......15 midpoint=only $15 per contract. Do you mean that AAPL must close in that narrow range between 475-485 to make any money by July 20/2013? How much money could you make if AAPL does close within that narrow band?
> 
> Also would you have to pay 3 sets of commissions for 1 contract of AAPL. AAPL closed at approx. 453 on Friday. So would only have to go up by 5% to hit 475....which could happen?


Squash500, I hope you googled butterflies and learned a bit more. I will answer your questions.

The long Jul 475/480/485 call butterfly is established by simultaneously buying one 475 call, selling two 480 calls and buying one 485 call. The buys and sells net out to paying 0.15 or $15 for a one lot trade.

The max profit of the trade is 4.85 (butterfly max profit is width of one wing - premium paid). If AAPL pins 480 at expiration, max profit will happen. Between 475.15 and 484.85, there will be a smaller profit. Outside of this range is a 0.15 loss at expiration.

This trade for a one lot has 4 contracts so commissions will be based on that.

What makes this a lottery ticket is the big payoff for the tiny risk. Given this, AAPL needs to fall in the tight range at expiration. Even though it is still a low probability trade, it is more probable for AAPL to hit the 475-485 range rather than exceeding 600 by July expiration.


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## metatheta (Oct 1, 2012)

humble_pie said:


> i like this. It's a partial inversion of your usual earnings strategies, theta? buy lo call sell hi call, very tantric ...


This is a debit spread and a directional trade. Debit spreads are good when vol is low. AAPL vol is low right now. The trade has an ITM long option and an OTM short option. The trade still benefits from time decay on the OTM short option.

Personally, I'm neutral to bearish on AAPL so the trade for me would be a Jun 455/450 put vertical for around 2.45DR. Again an ITM long option and an OTM short option with some time decay on the OTM short option.

The key thing here is no matter what your stock assumption is, a good option strategy can help you improve your probability and reduce risk.


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## Rusty O'Toole (Feb 1, 2012)

metatheta said:


> I have a TDW and IB account.
> 
> I don't understand why in TDW one has to specify explicitly "Buy To Close", "Buy To Open", "Sell To Open", "Sell To Close" for options trades. In IB it is all implied what you are doing based on your existing position.


It has to do with margin. If you "sell to open" you are short the option and must back it up with a certain amount of margin in case the trade goes against you. If you "sell to close" of course you are out of the trade with no further obligation.


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## metatheta (Oct 1, 2012)

Rusty O'Toole said:


> It has to do with margin. If you "sell to open" you are short the option and must back it up with a certain amount of margin in case the trade goes against you. If you "sell to close" of course you are out of the trade with no further obligation.


I have no position on a specific option and I tried doing this in TDW.

Buy to Close 1 contract and I get the error - "Your account must be short for a closing buy."
Sell to Close 1 contract and I get the error - "Your account does not hold sufficient quantity of this security."

Isn't it implied that if I want to Buy and I have no position that it is a Buy to Open or that if I want to Sell and I have no position that it is Sell to Open?

Why not simplify it with a Buy or Sell like IB?


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## Jaberwock (Aug 22, 2012)

Buy to open, buy to close etc does not make any sense to me either. Its just Buy or Sell.


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## avrex (Nov 14, 2010)

metatheta said:


> The long Jul 475/480/485 call butterfly is established by simultaneously buying one 475 call, selling two 480 calls and buying one 485 call. The buys and sells net out to paying 0.15 or $15 for a one lot trade.


wow, we've really moved far beyond the OP's original question about playing penny-slot options.
But this is great education.

@metatheta, that is cool. A $15 lottery ticket that potentially pays $485.

Since I've only ever performed one-leg trades, can you guys explain to me how you would execute and then close the above trade.

*1. Margin Requirement / Execution order.*
I understand that my total margin is $15.
However, to ensure that I don't ever exceed my margin requirement on each individual leg, what is my order of implementing this trade?
Buy the two calls first. Then sell the other two calls.

*2. Expiration date. What happens?*
In this trade, we are hoping that the underlying pins somewhere near 480 at expiration.
Does this mean that we hold these option positions through to expiration? (i.e. don't close them before expiration)
If the stock closes at $481 on the Friday bell, then,
- I hold one ITM long call that I can exercise.
- I have two ITM short calls that are being assigned.
What happens now? How do I settle my positions?


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## humble_pie (Jun 7, 2009)

avrex said:


> Expiration date [of the 475/480/485 fly] ... If the stock closes at $481 on the Friday bell, then,
> - I hold one ITM long call that I can exercise.
> - I have two ITM short calls that are being assigned.
> What happens now? How do I settle my positions?



theta? he'd have to exercise & pay for the otm call as well, averaging purchase at 480 plus commish? gah?

i guess this means Close Before Expiry? like maybe tues or wed?

would an iron fly fly better?

thankx as always!


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## metatheta (Oct 1, 2012)

avrex said:


> Since I've only ever performed one-leg trades, can you guys explain to me how you would execute and then close the above trade.


Hey wingman, I know you have an IB account so let's paper trade this together on IB today. Fellow homegamers can play along.

Use IB's ComboTrader tool. In fact, IB has order templates for most strategy spreads like butterflies, calendars, verticals, strangles, straddles, and iron condors.

Place an order to BUY this butterfly combo. (Now TDW, do we really need to specify "Buy to Open" on this order? Forget it, you can't even handle spreads online!)

The order confirmation will show the margin impact of this trade. It should be $15 because that's the most you can lose. 

The order goes in as a spread and filled on all legs. *Never* leg into a trade you intend to do as a strategy spread. You want it filled as a package. You may have to pay up to 0.20-0.25 to get this filled immediately or wait until your 0.15 bid gets hit.

We need to watch this trade as July expiration approaches. If AAPL is well outside our sweet spot trading range of 475-485 in July, just let it go and rip-up the lottery ticket. If it is around the range on the last week of expiration, it is best to close it with a SELL order (none of this "Sell to Close" crap, I digress) and take whatever profits there is. No hero stuff, just move on and construct another trade. Also you don't want to deal with partial exercise or assignment on expiration. It can get messy. Take it off as a package. AAPL recently paid dividends so there is no dividend risk for July.

Butterflies are very advanced trades. Anyone starting out with multi-leg trades should start with verticals. But hey, IB gives you $1 million to paper trade. Go crazy!

BTW, butterflies are not really my style but I've done them. They are low probability lottery tickets and hitting the jackpot of AAPL 480 at expiration will be tough. I just offered the idea as a better lottery ticket to the Jul 600 calls which this thread was all about.


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## Squash500 (May 16, 2009)

metatheta said:


> Squash500, I hope you googled butterflies and learned a bit more. I will answer your questions.
> 
> The long Jul 475/480/485 call butterfly is established by simultaneously buying one 475 call, selling two 480 calls and buying one 485 call. The buys and sells net out to paying 0.15 or $15 for a one lot trade.
> 
> ...


Thanks for your excellent response Meta.....I really appreciate it. I'm going to keep track of this trade and see how it works out in the end.


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## metatheta (Oct 1, 2012)

humble_pie said:


> i guess this means Close Before Expiry? like maybe tues or wed?
> 
> would an iron fly fly better?


You don't want to deal with the stock so this butterfly should be closed before expiration. Let it go if all legs are well OTM.

An iron butterfly is not a typical trade to open. It's usually an iron condor or vertical that has gone through an adjustment where the short put and call strikes are identical.


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## metatheta (Oct 1, 2012)

Squash500 said:


> Thanks for your excellent response Meta.....I really appreciate it. I'm going to keep track of this trade and see how it works out in the end.


Also track the other trades we discussed on this thread.

One thing I like about options is that you can do multiple positions with different assumptions on an underlying. Try doing that with stock.


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## humble_pie (Jun 7, 2009)

metatheta said:


> ... Now TDW, do we really need to specify "Buy to Open" on this order? Forget it, you can't even handle spreads online! ... none of this "Sell to Close" crap, I digress



respectfully, theta, why are u having a jungle-type panic lacuna over the Buy option issue at tdw.

it's a non-issue. Just click the correct button already. Don't deliberately click Buy to Close, like you said you did on purpose when you really meant Buy to Open, for no other reason than to get a response from the server that u can complain about.

on 2nd thought maybe like jungle you would be better off leaving the big green & taking your rrsp somewhere else?

take it to IB as 1st preference. Then bug em incessantly to hurry up & develop canadian registered accounts. You'll have as much luck as bugging tdw.

meanwhile, there's bmo, they have USD rrsps plus option policies you would ell oh vee eee l.o.v.e. I hear roybank is just as baaad.


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## avrex (Nov 14, 2010)

metatheta said:


> Use IB's ComboTrader tool. In fact, IB has order templates for most strategy spreads like butterflies, calendars, verticals, strangles, straddles, and iron condors.


unfortunately, I don't have admin rights on my work-based computer, so I can't run IB's Java based Trader Workstation to get at the IB ComboTrader function. I'll have to try this at home at some point, when I have a day off of work.

@metatheta, thanks for the tips. I'll continue to watch this thread for more on these trades. thanks.


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## metatheta (Oct 1, 2012)

humble_pie said:


> respectfully, theta, why are u having a jungle-type panic lacuna over the Buy option issue at tdw.


Sorry humble, I'll stop the complaints.

It's just that time of the month for me. The time when I have to roll my BB.TO covered calls and I always have to call it in to talk to a live TDW person. I can't do it online. Furthermore, they will only make it a day order. If I don't get filled, I will have to call it in everyday. Also, if I need to modify the order, I need to call it in again. Very frustrating.


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## humble_pie (Jun 7, 2009)

metatheta said:


> Sorry humble, I'll stop the complaints.
> 
> It's just that time ... when I have to roll my BB.TO covered calls and I always have to ... frustrating.



i know what you mean. I have issues w rrsp options myself. The prob is never being allowed to do the naked shorts first, if that were possible i'd be able to do all spreads by hand (yea i'm an italian bespoke shoe custom cobbler, u know that)

may i mention couple suggests:

- if u have enough cash to buy to close short leg you could roll this yourself by legging options in, provided the B/As look decent on both sides & there appear to be some possibilities. Of course the better bargain may potentially be had on the new short side, which alas cannot be sold in reg'd.

- i am always less ambitious about rrsp spreads than i ever am in non-reg'd. I couldn't stand phoning the thing in day after day, i usually aim to get it done by day 2 (hint i'd never do monthlies in rrsp, not with such a blasted phone-in arrangement)

- alternatively one *can* trade options on rrsp underlyings outside the rrsp, ie in ordinary margin account. This is not really a great way to go. However, if ever i transfer my rrsp to bmo in order to get the USD benefits, it's the way i'd have to go, because their option spread capabilities are severely limited.

- ce soir i will send you a pmm about how to get best/lowest commish in rrsp option rolls at the big green, ok.


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## metatheta (Oct 1, 2012)

metatheta said:


> Personally, I'm neutral to bearish on AAPL so the trade for me would be a Jun 455/450 put vertical for around 2.45DR. Again an ITM long option and an OTM short option with some time decay on the OTM short option.


I wish I had this trade on. If I did, I would be trying to close this at 3.45. The trade went in the right direction too fast so taking profits would be smart.

As for the other trades, you will have to give it more time.


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## Squash500 (May 16, 2009)

AAPL getting hammered today. Right now...approx. 427...down almost 4% today. Will post AAPL option results at the end of trading day that have been mentioned in this thread.


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## metatheta (Oct 1, 2012)

Squash500, thanks for doing the scorekeeping duties.

Here are the trades:
- Long Jul 600 call; bought 0.35
- Long Jul 475/480/485 call butterfly; bought 0.15
- Long 100 shares; bought 453
- Long Jun 460 call; bought 11.90
- Long Jun 450/455 call vertical; bought 2.50
- Long Jun 455/450 put vertical; bought 2.45

With AAPL down, we should rank it from most painful to least painful.

I sure look dumb suggesting to close the AAPL bearish trade too early.


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## Squash500 (May 16, 2009)

metatheta said:


> Squash500, thanks for doing the scorekeeping duties.
> 
> Here are the trades:
> - Long Jul 600 call; bought 0.35
> ...


 OK Meta I'm going to have some fun with this. However I'm just going to analyze my own theoretical trade.....which was AAPL 22June13 460call. I paid a premium of 11.90 on this trade. At the time....AAPL was trading at approx. 453. My rationale for the trade was that I was bullish on AAPL and I decided to do this trade because it was just out of the money....which means that my premium was lower than had I chosen a strike price ATM etc.

This is a typical level 1 trade that TDW would allow me to do. Of course because I've never traded an option before I didn't check the Delta (probability an option will wind up at least .01 in the money at expiration). My total outlay on this hypothetical trade was $1201.24 US$. Therefore AAPL would have to close above $472.01 for me to make any money on this trade. I included my commission of $11.24 just to make things more accurate.

Today AAPL closed at 428.85 (down 3.38%)....as a result my option trade took a big hit. My trade closed at 4.75...which was a loss of 40.03% on the day. This trade expires in 38 days....and now the underlying (AAPL) has to go up by at least 10.07% for my trade to get in the money on expiration. 

According to TDW analytics....the delta on this trade is now at ..277....which means that with all things being equal that my trade only has a 27.7% chance of success. If this was a real trade....I might seriously consider bailing out on this trade tomorrow and take approx. a $715 loss on my trade.

Meta how would you handle this trade? Would you cut your losses or continue with the trade. Meta would you mind explaining today's results of your own trades. I'm not even sure if I'm on the right track with my level 1 options trade---LOL. Meta one thing I'm confused about is what implied volatility means?

On this trade the IV is now 25.994. I've got to read up more on implied volatility. I guess IV has to do with how volatile the stock is? Probably a stock like SLW would have a much higher IV then AAPL etc? It turns out the IV for SLW for a similar OTM option is approx. 38.

I just briefly looked up IV....the higher the IV the more the stock is expected to move.


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## Squash500 (May 16, 2009)

Avrex's hypothetical ITM AAPL Jul2013 400 call with a premium of 57 was down 22.28% on the day. Trade closed at 37.50. Trade's lost 34.21% in only a couple of days. I'm starting to realize that leverage can be a killer--LOL.

OP's long JUL 600 call bought at .35...closed at .19. Down 20.83% on the day. Maybe just let this trade expire worthless. IMHO not worth spending the minimum $11.24 commission to close out this position.


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## james4beach (Nov 15, 2012)

metatheta said:


> Sorry humble, I'll stop the complaints.
> 
> It's just that time of the month for me. The time when I have to roll my BB.TO covered calls...


lol, I wouldn't want to meet you on triple witching day!


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## metatheta (Oct 1, 2012)

I added avrex's long Jul 400 call.

Bullish lottery tickets
- Long Jul 600 call; bought 0.35; now 0.19; loss 0.16; max loss 0.35; max gain infinity
- Long Jul 475/480/485 call butterfly; bought 0.15; now 0.10; max loss 0.15; max gain 4.85

Bullish trades
- Long shares; bought 453; now 429; loss 24.00; max loss 453; max gain infinity
- Long Jul 400 call; bought 57.00; now 37.50; loss 19.50; max loss 57.00; max gain infinity
- Long Jun 460 call; bought 11.90; now 4.75; loss 7.15; max loss 11.90; max gain infinity
- Long Jun 450/455 call vertical; bought 2.50; now 1.30; loss 1.20; max loss 2.50; max gain 2.50

Bearish trades
- Long Jun 455/450 put vertical; bought 2.45; now 3.73; gain 1.28*; max loss 2.45; max gain 2.55

The stats above doesn't really illustrate what I want. I don't want to calculate percentage gain/loss because each trade has a different probability of profit. With different probabilities of profit, you would risk more on high prob and less on low prob. The key is to know the probability and risk accordingly.

I grouped the trades for better comparison. There's nothing to talk about on the bullish lottery tickets because the direction is completely wrong on it. Among the bullish trades, the call vertical is inflicting the least amount of pain. A low pain trade like this allows you to hold out longer and wait to be right. If you are long shares, you are in the house of pain.

As for the bearish trade, it's in the house of pleasure. *I wimped out and took a 1.00 paper profit. Although humble calls me tantric, I was a bit premature.

Squash500, for me it's not about leverage but about applying the right strategy to give you a better chance of being right over time. If you are good at making directional calls, then leverage is an amazing tool.

I don't talk about commissions because it clouds my judgement on making a good trade or adjustment on a trade. Don't get me wrong, I hate commissions. I want them as low as possible.


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## metatheta (Oct 1, 2012)

Squash500 said:


> Meta how would you handle this trade? Would you cut your losses or continue with the trade. Meta would you mind explaining today's results of your own trades. I'm not even sure if I'm on the right track with my level 1 options trade---LOL. Meta one thing I'm confused about is what implied volatility means?


Squash, let's see what we can do.

First of all, I'm don't like single-leg long-only option positions. (Look at avrex, he's a single-leg short naked guy.) I believe that you are immediately disadvantaged when buying an option. Of course unless you are good at picking the right direction.

So guess what I am going to suggest. Pair it off with a short call to spread it off. If you are going down with the trade, you might as well take something down with you. I will still assume that you are bullish on AAPL. If you sell the Jun 470 call for 3.00, you will have a Jun 460/470 call vertical at a net cost of 8.90 (11.90 - 3.00). Your max loss is now 8.90 and the breakeven for this trade is now 468.90. Much better than the 471.90 breakeven. What you give up is the unlimited max gain for a 1.10 max gain.

Selling the Jun 470 call now for 3.00 is the mechanical thing to do. However, you may want to chance it and wait for some rally in AAPL so you can sell the Jun 470 call for higher.

Multi-leg spreads are hard and expensive to do at TDW. That's all I want to say.


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## Squash500 (May 16, 2009)

Thanks for your excellent responses Meta. AAPL's off to a volatile start today. I'm going to wait for an AAPL rally. Will comment more later.


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## Squash500 (May 16, 2009)

On the long June22 AAPL 460 call....have decided just too hang in there. Position is presently trading at 4.60....down 17.16% on the day. Whereas AAPL is trading at approx. 432.50...down only .5% on the day. I'm just guessing....but I believe that time decay is starting to affect my hypothetical trade. Also the fact that the 460 is so far OTM isn't helping matters either.


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