Well, it's a learning curve for me. The brokerage firm did not fill the order at 2.50, so I readjusted to 2.60.
I closed the position today for a loss of $300.00
STC CCL July 2015 50 Call @ $2.30
I closed the position today for a loss of $300.00
STC CCL July 2015 50 Call @ $2.30
hhiusa
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How much do you pay for your options market data through Trade King?
TradeKing doesn't charge for market data, but their options data are not real time.
Will switch to IB or Optionsxpress when I'm done with TK.
JackRab
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Just curious how you expect to be able to hold to that risk per trade? Stops on options are far from ideal, since there usually is a relatively large spread and it's not a 1:1 derivative.
What if market makers decide to stop quoting and raise or lower volatility by a large nr. You'll be left hanging...
That said, if you stick to buying only, you have limited losses anyway.
Since buying options doesn't make money unless you get the direction right.... I too wonder.
hhiusa
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I have a question for you. TradeKing has a $4.95 base + $0.65 per contract commission structure. You bought 7 contracts. That is $4.95 + 7*0.65 = $9.50.
Why did you choose a stock that I would consider to be illiquid for option trading. It has a wide spread.
When I looked up the FSLR1620C62.5 option, it had a spread of $0.10. The delta was 0.5115. The gamma was 0.0475.
700*3.27 = $2,289. Buy and sell side commissions will be $19.00. 19/2,289=0.8%. Based upon that delta and that spread, the underlying will have to go up quite a bit just to break even. Holding all other things constant such as time decay, if the underlying goes up $1.00, the premium will increase by $0.51. That means that the option does not respond as much to increases in the underlying price.
0.1/0.5115=0.195. 0.8/0.5115=1.56. Theoretically, it will require a 1.56% in the underlying to move the premium up by 0.8%. That results in a target price for the underlying of 62.29*1.0156+0.195=63.46. That means that you need at least a 1.87% gain in the underlying in order to break even. The target price will likely have to be even higher than that because the premium will continually be decreasing in value due to time decay. The longer that it takes to reach the target price, will require an even higher target price.
JackRab
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Theta of 5 cents doesn't help either. People think it's an easier gamble with options, because of limited losses. And the % gain can be really fancy...
However... time decay!!!!
Anyway, hope he got out at 2.97 with the stop....
Thanks for your comment. Apart from Indices like SPY, QQQ, TLT, etc, and maybe Stocks like Google and Apple, most stocks have a wide bid/ask spread. I don't like trading indices for lack of time. Can't stay online to watch every tick.
I didn't close the trade yesterday (27/04/2016) when the bid was 3.15 and the option closed at 3.00.
First Solar (FSLR) gap down today after closing at 62.03 yesterday. The stock shed $5.01 (8.08%) to close at $57.01. I bought 7 Contracts of May 20 2016 62.50 Call at $3.27 a piece. The option closed today at $0.44
There's nothing much left to do about the trade, but to wait it out and hope it recovers. The technical outlook still favors uptrend. What remains to be seen is if the stock will rally like it has done each time it tanked in the past.
I will update...
Thanks for reading
There's nothing much left to do about the trade, but to wait it out and hope it recovers. The technical outlook still favors uptrend. What remains to be seen is if the stock will rally like it has done each time it tanked in the past.
I will update...
Thanks for reading
hhiusa
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As I said earlier, the likelihood that the premium will recover even if the underlying rallies, is slim to none. You have to deal with time decay and an ever decreasing delta, which makes the option increasingly unresponsive to changes in the underlying.
Bid = $0.36, Ask = $0.47
Delta = 0.2506
Gamma = 0.0457
Theta = -0.0512
Due to this gamma, your delta will decrease rather quickly. For every $1.00 that the underlying increases, the premium will increase by $0.25. The spread is $0.11. Your entry price was $3.27. You have to sell at the bid, which means you need a $2.91 increase in the premium. (1/0.2506)*2.91 = $11.61. Since it takes a $1.00 increase to raise the premium by $0.25, it will require a $11.61 increase in the underlying to raise the premium by $2.91. Ceteris paribus.
The commissions for the buy side and the sell side will cost 0.8% of this trade. 0.8%/0.2506 = 3.19%.
FSLR closed at 57.09
11.61/57.09 = 20.3% increase needed in the underlying for the premium to reach your buy price.
1.203*1.0319 = 1.2417
You need a 24.17% increase in the underlying in order to break even. Ceteris paribus.
I would sell now while you can. You are likely to lose your $2,289 when the option expires.
JackRab
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Good analysis HHIUSA.
Now we enter into the "I already lost 2k, so the other 300 doesn't matter that much"-trap.
Why didn't you use your stop the way you said you would Quest2016? You didn't follow your own trading rules, and you're supposed to teach others how to trade a shoestring to 6 figures... The whole shoestring budget now almost blown...
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