Options Help

Feb 22, 2017
18
0
11
#1
Hi,

Hopefully someone can help me understand this a bit better because I thought I had it down but then the outcome of my situation confused me lol.

This was a test account so I could see how it works live.

I bought a 1 Put option on BABA last week, strike price In The Money at $148.00 and the bid/ask mid point was 7.00 so I paid $7 for the option.

So with this information it was my understanding that the stock needs to be $7 down before my option hits break even, so $141.00 for break even and from this point on each point the stock dropped from there was pure profit. One thing I noticed was my option on my order window started to show break even/ moving into profits at $143 so when it was dropping below here I was in the green, this part I don't understand? I thought It wouldn't show any profit until it broke below $141?

So today I sell to close the put option when BABA came all the way back up just above $144.25 area, I market sold to close off quick and the "AVG" price was showing 5.85 but when I check my broker statement online the "Closing Price" was showing 3.74.

So my platform shows I took a $115 loss on the option but on the actual online statement it shows I took a bigger loss on the option at $325.

Confusing me to death so hopefully someone can help clarify haha.

Edit: I can understand the $325 loss because break even is mean't to be $141 so closing at $144.25 would produce a loss of 3.25, I guess my broker platform showing profit at the $143 mark is some sort of error or I'm maybe misunderstanding something?

Thanks for your time.

Regards,
Steven
 
Last edited:
Aug 15, 2018
46
5
8
#2
Hi,

Options are complicated, so be patient studing them)

So, at first about the breakeven. The $7-to-breakeven is for expiration day. If you are going to sell it before, it would have some time value, so the breakeven would be closer to your price.

Now about the execution price. Options have extremely huge spreads, so the execution price quite often can surprise you. While trading real options, ALWAYS use only limit orders.
 
Feb 22, 2017
18
0
11
#3
Hi,

Options are complicated, so be patient studing them)

So, at first about the breakeven. The $7-to-breakeven is for expiration day. If you are going to sell it before, it would have some time value, so the breakeven would be closer to your price.

Now about the execution price. Options have extremely huge spreads, so the execution price quite often can surprise you. While trading real options, ALWAYS use only limit orders.
Ahh ok that explains a lot, I knew about the time factor etc but I would think the broker would always show an updated break even point on your option?

Yeh I will make sure to always limit order with options!

Thanks that helped clear up the "earlier" break even point being at $143, will maybe need to speak with my broker to see if they have somewhere that the option "break even" always shows as I'd imagine this changes the longer you hold the option right>?

Thanks for the info!
 

Windlesham1

Active member
Jul 30, 2003
387
15
28
65
United Kingdom
#4
Hi,

Hopefully someone can help me understand this a bit better because I thought I had it down but then the outcome of my situation confused me lol.

This was a test account so I could see how it works live.

I bought a 1 Put option on BABA last week, strike price In The Money at $148.00 and the bid/ask mid point was 7.00 so I paid $7 for the option.

So with this information it was my understanding that the stock needs to be $7 down before my option hits break even, so $141.00 for break even and from this point on each point the stock dropped from there was pure profit. One thing I noticed was my option on my order window started to show break even/ moving into profits at $143 so when it was dropping below here I was in the green, this part I don't understand? I thought It wouldn't show any profit until it broke below $141?

So today I sell to close the put option when BABA came all the way back up just above $144.25 area, I market sold to close off quick and the "AVG" price was showing 5.85 but when I check my broker statement online the "Closing Price" was showing 3.74.

So my platform shows I took a $115 loss on the option but on the actual online statement it shows I took a bigger loss on the option at $325.

Confusing me to death so hopefully someone can help clarify haha.

Edit: I can understand the $325 loss because break even is mean't to be $141 so closing at $144.25 would produce a loss of 3.25, I guess my broker platform showing profit at the $143 mark is some sort of error or I'm maybe misunderstanding something?

Thanks for your time.

Regards,
Steven
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