So I'm kinda new to this option thing...,I made a call for TKMR for about 250 contracts at a strike price for $30 at about 4k. The price at the time was about $23. (Paper money ofc.)
Now the thing is the price did reach $30 a few day's ago but I think it was in afterhours trading so I didn't get a chance to sell it...
How do I set this so it'll sell the contracts automatically for me once it reaches $30?
Do I make a limit order set at $30?
Also, when I proceed with the order it say's I'm selling 700k worth of contracts.. This is ridiculous, I doubt that is what I'm gonna make if it reaches $30. I assume I'm suppose to subtract what the contracts were worth at the time ($23) with what I closed it at?
Here is quick lowdown on what you did. At some point you bought Oct14 or something Calls at the 30 strike for about .16 per contract (or 16$ per lot x 250=4000$). (I can't find anywhere it was trading at 23 and the 30 strike was trading at .16...when and what exactly did you buy?).....(unless you bought the NOV14 30 strike for 1.60x250=40,000...or 1.60x25=4000...but something doesn't add up)
Anyway.....The value of out of the money (OTM) options is made up of time (theta) and expected move, or volatility. At the time of your purchase your breakeven can be calculated by adding the strike you purchased to how much you paid for it. In this case 30+.16...so to breakeven on this it has to be at least at 30.16 at expiration. But wait...it gets worse....as time moves forward the value of time (theta) erodes. And erodes even more rapidly in the last 30-10 days before expiration. So even as the price moves up it has to move up in excess of the loss in theta per day if you want a chance to get out early.
On last Fri at around 14:10 it reached nearly 30. At that time you could have sold the top (hard to pick but lets just say)...if you had NOV 30 calls they would have brought about 4$ each....if I'm wrong and you had Oct somehow, they were selling at about 2.15$ ea.....either way a pretty good return. Your net gain would be the sell price minus the .16 each you paid minus fees.
I don't know where the 700k is coming from. The contract you bought gives you the option to buy the stock at 30$ anytime until the expiration Saturday...or sell the contract back for whatever you can get anytime before 15:00 on expiration Fri. So if you want to get out with a limit order to sell for a 1$ profit....set a Good till Cancelled order (GTC) to sell 250 contacts @ 1.16$....means you bought it at .16 and you are willing to sell it anytime someone wants to pay 1.16 for a 1$ return.
Some quick notes. When you entered this trade you bought a call that was out at about 1 standard deviation of expected price move....means you had about a 16% chance of making .01$. Risking 4000$. Another strategy using the same capital and same directional assumption could have been to sell 10 of the OCT14 puts at the 20 strike for 120.00 per contact for a 1200$ credit...margin requirement would be a little over 4000$ and now your breakeven would be anything above the strike price MINUS credit received ='s 18.80. At the Implied Volatility at the time that would have given you about an 80% chance of not losing any money. And if the price did come down too far you could always roll to the next month allowing you to adjust your position for credit or lower strike and added duration.... or sell OTM calls against it for added credit and little added reduction in buying power......and every day that goes by your option gains value as time value (theta) erodes....and you look for the opportunity to buy back your short strikes at a price lower than what you sold them for.
When you buy OTM options you are paying for the time value and time works against you. When you sell OTM options you are getting paid for the time value and time works in your favor.
Just an idea.
But it would help if we knew which calls OCT, NOV, weeklies etc.
Just say something like....I'm long 250 of the OCT14 30's for .16....then ask the question.
Very nice
