Question about Options Trading?

[MistakesWereMade]

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?

 

[CostaKapo]

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?

What platform are you using? What is the expiration date? Are you realistically going to trade 250 contracts? On a standard account with normal commissions that is going to cost you 9.99+1.50 per contract. So 385$ to place that trade on commissions alone.

I couldn't find any chart that shows that ticker reach 30$ the closest being 29 and change on Oct. 3rd.

The only expiration where you could get the 30 strike call contract for near 4k that would be the Oct 18th 2014. So in the next 4 days that contract would need to get to 30.

250 * 100 * 24 = 575,000

 

[CostaKapo]

What platform are you using? What is the expiration date? Are you realistically going to trade 250 contracts? On a standard account with normal commissions that is going to cost you 9.99+1.50 per contract. So 385$ to place that trade on commissions alone.

I couldn't find any chart that shows that ticker reach 30$ the closest being 29 and change on Oct. 3rd.

The only expiration where you could get the 30 strike call contract for near 4k that would be the Oct 18th 2014. So in the next 4 days that contract would need to get to 30.

250 * 100 * 24 = 575,000

So there are order types that would allow you to sell the contracts once it hits an underlying, and that depends on the broker. It is more of a question of if its worth it to place that trade in the first place. You have 4 days for a stock with a range of 22-24 dollars to get to 30. Even if it gets to a few dollars higher, the contract will be illiquid and you're losing a lot of money.

Round trip almost 800$ on commission. To recoup that on an original investment of 4000 you need 20% return just to break even.

 

[ACstudio]

So there are order types that would allow you to sell the contracts once it hits an underlying, and that depends on the broker. It is more of a question of if its worth it to place that trade in the first place. You have 4 days for a stock with a range of 22-24 dollars to get to 30. Even if it gets to a few dollars higher, the contract will be illiquid and you're losing a lot of money.

Round trip almost 800$ on commission. To recoup that on an original investment of 4000 you need 20% return just to break even.

For trading on TOS from TDA the 9.99 is the initial fee then it's only 1.50 per contract. so ten contracts would be 9.99+15.00=24.99. I don't think anyone is paying 10.49 per contract anywhere. And for anyone using TOS and you want them to knock off that 9.99 so it's just 1.50 per contract this is what you do.

First register an account w/ dough.com using the same user name and password as with TOS. Then call up your LOCAL and I repeat LOCAL TDA representative.....do not cal the national trade desk...they are clueless....and tell them that you are now registered with Dough and would like to get that fee reduction please. They may not be familiar with it at first but they will know how to look into it and within a couple of days it will go through. And you will be able to trade options for a flat fee of 1.50 per contract and 7.95 per stock trade of any amount. This applies to US accounts only.

 

[ACstudio]

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.

 

[CostaKapo]

For trading on TOS from TDA the 9.99 is the initial fee then it's only 1.50 per contract. so ten contracts would be 9.99+15.00=24.99. I don't think anyone is paying 10.49 per contract anywhere. And for anyone using TOS and you want them to knock off that 9.99 so it's just 1.50 per contract this is what you do.

First register an account w/ dough.com using the same user name and password as with TOS. Then call up your LOCAL and I repeat LOCAL TDA representative.....do not cal the national trade desk...they are clueless....and tell them that you are now registered with Dough and would like to get that fee reduction please. They may not be familiar with it at first but they will know how to look into it and within a couple of days it will go through. And you will be able to trade options for a flat fee of 1.50 per contract and 7.95 per stock trade of any amount. This applies to US accounts only.

What platform are you using? What is the expiration date? Are you realistically going to trade 250 contracts? On a standard account with normal commissions that is going to cost you 9.99+1.50 per contract. So 385$ to place that trade on commissions alone.

TDA will offer the cut and paste email to those who don't have significant options volume -

Thank you for the email. Options on ETFs are not free you will pay 9.99 + .75 per contract when trading options on ETFs. We never like to make commissions an issue and we are happy to work with you to see what we can do. Generally, we make reductions based on trading volume and trading style and can certainly assist you in finding the best rate.

Please keep in mind that there is a lot more to the trade than just commissions. A good fill can often times cover way more than the cost of the trade. It is important to consider the overall transaction cost associated with doing business with a broker. At TD Ameritrade, we only charge for your transactions with no minimums or data fees. You will also be happy to learn that unlike many of our competitors, all our services are included free for all our clients; this means you get free historical charts, free real-time quote data, free access to our version of level II quotes, free access to our Trade Desk (many experienced market makers from the CBOE). Also, we believe the free platform we provide is the best in the industry and the continual, cutting-edge innovation we push out with our products allows us to provide our clients with the best trading experience. Additionally, we offer several promotions including zero commissions to buy back short options for $.05, our IRAs are free, and there are no account maintenance fees.

We are always happy to review accounts on a case-by-case basis and you can contact us anytime if you would like us to determine if we can set your account to a further reduced rate given your trading volume and style. That said, after reviewing your account what I can currently offer you is 1.50 per equity option contract. We do not match .25 per contract as we have too much to offer compared to what other brokerages have.

Regards,

Wei Mei
Client Liaison
thinkorswim from TD Ameritrade


I have gotten the same email several times until I surpassed 100k in equities options trading.

Edit: 9.99 + (1.50*250) is where I got 385 from x 2 nearly 800 dollars in commission.

 

[MistakesWereMade]

Too complicated....

But thx for the answers..

 

[ACstudio]

TDA will offer the cut and paste email to those who don't have significant options volume -

Thank you for the email. Options on ETFs are not free you will pay 9.99 + .75 per contract when trading options on ETFs. We never like to make commissions an issue and we are happy to work with you to see what we can do. Generally, we make reductions based on trading volume and trading style and can certainly assist you in finding the best rate.

Please keep in mind that there is a lot more to the trade than just commissions. A good fill can often times cover way more than the cost of the trade. It is important to consider the overall transaction cost associated with doing business with a broker. At TD Ameritrade, we only charge for your transactions with no minimums or data fees. You will also be happy to learn that unlike many of our competitors, all our services are included free for all our clients; this means you get free historical charts, free real-time quote data, free access to our version of level II quotes, free access to our Trade Desk (many experienced market makers from the CBOE). Also, we believe the free platform we provide is the best in the industry and the continual, cutting-edge innovation we push out with our products allows us to provide our clients with the best trading experience. Additionally, we offer several promotions including zero commissions to buy back short options for $.05, our IRAs are free, and there are no account maintenance fees.

We are always happy to review accounts on a case-by-case basis and you can contact us anytime if you would like us to determine if we can set your account to a further reduced rate given your trading volume and style. That said, after reviewing your account what I can currently offer you is 1.50 per equity option contract. We do not match .25 per contract as we have too much to offer compared to what other brokerages have.

Regards,

Wei Mei
Client Liaison
thinkorswim from TD Ameritrade


I have gotten the same email several times until I surpassed 100k in equities options trading.

Edit: 9.99 + (1.50*250) is where I got 385 from x 2 nearly 800 dollars in commission.

Ye like I said....those people are clueless. If you have a free account w/ dough.com they will take off the 9.99 for options and reduce stock trades to 7.95. But you will have to contact your LOCAL rep over the phone. And tell them you now have an account w/ dough and would like the fee reduction that comes with it. Trust me I've walked a bunch of people through this and not one has been denied. It is a deal Tom Sosnoff made with TDA and you need to take advantage of it. It is very hard to trade small and often when your down an extra 20$ on every in/out.
If for some reason you are denied even after you have a dough account simply email Tom or Tony and they will personally handle it or connect you with someone who will.

 

[ACstudio]

Too complicated....

But thx for the answers..

It may seem that way at first....that's what keeps a lot of people from being profitable w/ options.

The simple answer is.....
To figure where your options contract will be profitable you need to know where your break even point is. To figure this simply add the price you paid to the strike you bought. That give you the number the stock has to be at by expiration for you to break even.

If you want to get out early just look at what it is trading for. If you bought it for 1$ and later it's trading for 1.50$...you can sell it for a .50 profit.

If you want to create an order to sell at a certain limit just create a sell order at the limit/price you want and make it Good Until Cancelled (GTC). So if you bought it for 1$ and you want to sell it the first time it's worth 1.50$ just make your limit order for 1.50$.....times the number of contracts and your done.

 

[MistakesWereMade]

After digging thru several tutorials I'm finally beginning to understand how this works a little!

So it seems I completely had the wrong idea... The strike price is what I'm gonna pay for it so it's gotta be above that for any profitably. I thought the strike price was the price it has to reach before I'm allowed to excerise or sell to close. All this time I'm trying to sell as soon as it hits the strike price bah!

 

[ACstudio]

After digging thru several tutorials I'm finally beginning to understand how this works a little!

So it seems I completely had the wrong idea... The strike price is what I'm gonna pay for it so it's gotta be above that for any profitably. I thought the strike price was the price it has to reach before I'm allowed to excerise or sell to close. All this time I'm trying to sell as soon as it hits the strike price bah!

Exactly...good job.
Terms you might look up for options are
Extrinsic value
Intrinsic value

And ye if the stock price moves up to or past your strike price it will be worth more than what you paid for it. You don't want to exercise early unless you have a really good reason as you will be giving up all the extrinsic value left in the option.

For me the whole objective w/ options trading is to take profits early. I very very rarely carry anything to expiration. Except losers. And I never just buy an option. Because you are paying for premium that will erode with time....unless you buy deep in the money where there is little to no extrinsic value. To see what the extrinsic value of an in the money call is simply look to see what the corresponding put is selling for. Out of the money options are pure extrinsic value.

I know that's a lot but it will all start to make sense as you move forward.

 

[CostaKapo]

Exactly...good job.
Terms you might look up for options are
Extrinsic value
Intrinsic value

And ye if the stock price moves up to or past your strike price it will be worth more than what you paid for it. You don't want to exercise early unless you have a really good reason as you will be giving up all the extrinsic value left in the option.

For me the whole objective w/ options trading is to take profits early. I very very rarely carry anything to expiration. Except losers. And I never just buy an option. Because you are paying for premium that will erode with time....unless you buy deep in the money where there is little to no extrinsic value. To see what the extrinsic value of an in the money call is simply look to see what the corresponding put is selling for. Out of the money options are pure extrinsic value.

I know that's a lot but it will all start to make sense as you move forward.

:clap: Very nice

 

[MistakesWereMade]

Exactly...good job.
Terms you might look up for options are
Extrinsic value
Intrinsic value

And ye if the stock price moves up to or past your strike price it will be worth more than what you paid for it. You don't want to exercise early unless you have a really good reason as you will be giving up all the extrinsic value left in the option.

For me the whole objective w/ options trading is to take profits early. I very very rarely carry anything to expiration. Except losers. And I never just buy an option. Because you are paying for premium that will erode with time....unless you buy deep in the money where there is little to no extrinsic value. To see what the extrinsic value of an in the money call is simply look to see what the corresponding put is selling for. Out of the money options are pure extrinsic value.

I know that's a lot but it will all start to make sense as you move forward.

Yeah, I was just getting into this time decay nonsense!...

I'm just gonna take profits early since all my options are weekly's.

 

[billyjean]

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?

Don't sure about Option trading platforms, but spot MT4 has sell limit feature for this purpose..

 

[ACstudio]

Yeah, I was just getting into this time decay nonsense!...

I'm just gonna take profits early since all my options are weekly's.

Cool, if you are going to trade weeklies or hold in the last 5-7 days before expiration make sure you have a pretty good understanding of "Gamma risk" and how it acts in the last days before expiration....if you don't the market will teach you..haha.

 

[MistakesWereMade]

Cool, if you are going to trade weeklies or hold in the last 5-7 days before expiration make sure you have a pretty good understanding of "Gamma risk" and how it acts in the last days before expiration....if you don't the market will teach you..haha.

Hard to understand the definition and how it plays out tbh.. Very confusing term..

 

[ACstudio]

Hard to understand the definition and how it plays out tbh.. Very confusing term..

Delta as used here refers to the directional risk as compared to the underlying. So if you have a strike at 30 deltas this refers to how much the option price is expected to change vs a 1$ move in the underlying. So if the underlying changes by 1$ the option should change around .30$. But the deltas will change as this price moves...so as the price moves closer or further away to the strike the deltas will change also. The greek used to define the rate of change of Delta is Gamma. And this Gamma increases as it nears expiration as there is less and less extrinsic value in the option.

So when you are further away from expiration the Gamma may be low. So a 1$ move in the underlying might only change the Delta by a few points....but as you get closer to expiration that rate of change spikes to the point where your option could go from 30 deltas to 80 deltas or 5 deltas with even the slightest move. Even to the point where your option is trading near 1 to 1 with the stock movement as expiration nears it's end....especially if the underlying is trading near the strike.

Maybe good...maybe bad...but very difficult to manage if you have undefined risk.

When trading probability strategies managing deltas is important....and when the Gamma risk is high it makes it difficult to manage when Deltas might move against you rapidly.

 

[MistakesWereMade]

I think I understand..

So gamma is a fancy way to measure how fast the extrinsic value will decline and delta refers to how much it would decline? A $1 change in the underlying stock with 500 delta = $50? So if a stock was at $10 and it drops by $8 you've just lost $100 extrinsic value and the delta will decrease the further the stock falls away from it's strike price and vise versa?