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Any Day Traders on TA? (pg. 15)
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| Dr. Z |
What you are seeing is absolutely correct. Quoted price of your option is $1.10 per share. Since most contracts are 100 share moves, the total price of one contract is 1.10 x 100 = $110, since you bought 100 contracts, the total price of your purchase is 110 x 100 + brokerage fees ($166.50) = 11,166.50.
Don't get confused with what's displayed in your pic "estimated comission". The estimated comission here are the brokerage fees associated with making that purchase. This money dissapears. However, since your option is in the money (the put strike price is larger than the current price) there is some initial larger assiciated value of the option since you can immedeately exercise it to earn positive money.
For an example, if stock A is trading at $100, but I want to sell a strike price $150 put. The buyer can immedeately exercise the put to make $50 per share, or $5000, so that means that I should be charging at least $5000 total or $50 put option + a small amount of personal comission, which might be $0.5 per share, so the put would be listed on the market as a $50.50 price put with strike price $150. So now, if you exercise it immedeately I make $0.5 per share, and you lose $0.5 per share. In this case, you need to wait for it to fall to $99.5 to break even.
Hope that helps, I'm not good at explaining financial terms, but this could help you further. http://www.investopedia.com/terms/p/put.asp |
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| simms327 |
| quote: | | Originally posted by Dr. Z |
Thanks! I guess I should have googled |
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| DigiNut |
| quote: | Originally posted by simms327
I don't know enough about options to feel confident in trading them.
What are the fees like, i know TD charges $7 per contract, but what is that? Is a contract 1 share, or just a contract for a number of shares that I decide?
Also, i think options use up your margins, which I find odd, as an option is only an option, if i am losing money on it, or cant afford to go through with it, i just don't execute the option...
I understand the basic principle behind them, but when you get into rolling over, i get confused.
Know any good places to learn about the specific details? |
I would agree, if you don't feel totally confident then you should not trade them. TD probably issued several dire warnings to you when you signed up. Some types of trades, such as writing naked calls, can be particularly dangerous, so you need to be careful.
I think of options as being a bit like the game Risk. There is still no small element of luck, but if you take the time to work on a strategy, you can often (not always) minimize any losses while taking in a hefty return. You may have to be patient - this is generally not day trading.
You need a margin account to be eligible for options because having the options option (...) also allows you to write options, which is like short selling and will indeed use up your margin. Holding options does not use margin.
An equity contract is almost always for 100 shares, although it doesn't have to be. TD's commission is actually $1.25 per contract, plus your normal trade commission - it's not really expensive, I think it's just to deter you from trying to sell options at $3 each if they expire (almost) worthless. And some options WILL expire worthless, it's an expected result of many different strategies.
Rollovers are normally spoken of in the context of funds, and they can cause funny things to happen. For example, in oil, DXO (long) is up today, and HOD (bear) is also up today. I can't totally explain this but I know it has something to do with options expiry last Friday and contract rollovers. For a retail investor, rolling over is just a colloquial term I'm using because I don't know a better one, and I'm referring to closing an existing options position and starting a new one because either (a) the original is about to expire, or (b) the "strategy" is over, profits have been made or losses have been taken, and you want to start over again.
I just want to point out for anybody reading this that I am not an options expert, just someone with a keen interest, and the best suggestion I can offer to anyone who's also interested is to start small, because you'll learn all sorts of weird intricacies about them in the process. I'm pretty sure that most of what I've said here is accurate, and I'm pretty sure that most people in this thread are going to do their own research anyway, but as always, when real money is on the line you want to make sure you know exactly what's happening with it and don't put too much faith in what some guy on the internet said. :p |
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| DigiNut |
So unrelated to the options thing, another one I've been swing-trading is Callon Petroleum (CPE). Last week I bought at $2.25 and sold at $3. Bought in again at $2.50, averaged down at $2.35, and sold again at $2.75 today (kept a few lots in case the green shoots continue this week).
This company owns and develops oil and gas reserves. Technically they seem to track oil futures - their chart is quite similar to something like DXO - but the return has been better recently. They surprised everyone by reporting an EPS of 11 when everybody was expecting -4. Still... they are down significantly from last year, so to me this is still a trading tool and not a "buy and hold", not yet.
Check it out. I'm actually surprised that it's been this volatile as opposed to showing steady growth, but it's good if you're like me and like to buy on dips and aim for a modest 5-10% return.
I've also been watching GRT (an American REIT that does malls and other retail) and have been afraid to actually trade it because I can't make sense of the trend, but there's a lot of price movement in that AND they're still paying a good dividend (they slashed it in March, share price climbed, and it's still 15%). I haven't completely made up my mind, but I think it could also turn out to be a winner. The only thing is, volume is kinda low, so factor in the usual liquidity concerns. |
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| simms327 |
So i decided to give this FAZ/FAS option a try
into this:
30 x FAS P JUN 9.00
30 x FAY P JUN 5.00
The prices on these options are even more volatile than the ETF.... |
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| Nrg2Nfinit |
| Looks like there Is a trading halt on wtn. Could be a Cambrian coal aquisition. That's the rumor anyways. U still holding diginut? |
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| DigiNut |
| quote: | Originally posted by simms327
So i decided to give this FAZ/FAS option a try
into this:
30 x FAS P JUN 9.00
30 x FAY P JUN 5.00
The prices on these options are even more volatile than the ETF.... |
Holy, you don't like to play small stakes eh? That's what, almost $10K invested? Careful!
Holding equal numbers of FAS and FAZ puts makes you pretty bearish at this price differential. Better watch carefully and not wait too long to take profits on some of the FAS puts if the value goes up.
You should expect the prices to be more volatile - after all, a single contract represents 100 shares at 20% of the price. That is why I prefer them to day trading; aside from tying up less capital, you can realize a 50% gain (or loss) on just a 10% movement of the shares.
| quote: | Originally posted by Nrg2Nfinit
Looks like there Is a trading halt on wtn. Could be a Cambrian coal aquisition. That's the rumor anyways. U still holding diginut? |
Definitely the acquisition and I am still holding. It's interesting that Cambrian went up after trading resumed and Western went down. Rumours about staff cuts maybe, or just the share dilution.
I hope it turns out to be good news. It certainly looks like it on the surface. |
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| Nrg2Nfinit |
generally thats the rule with acquisitions. the company that gets aquired gets boosted while the company doing the acquisition takes a bit of a shorterm hit. In this case i speculate the hit is due to share dilution. The acquisition will be made on issuing 88 million new shares which will dilute the equity of WTN. Keep in mind you don't take this as a percentage of the 209 mil outstanding shares since Cambrian's shares will be cancelled. People are saying a 7 or 8 percent dillution is a result of this. I don't know exactly how thats calculated but it must be a fraction of the outstanding shares/cancelled shares and newly issued shares.
IT would have been great to sell today at 1.47. But im waiting till before annual is released. I will probably sell before its actually released because this acquisition might bring their consolidated numbers down (if in fact we see a consolidated balance sheet between the two companies in the comming weeks). Also, Cambrian's financials aren't in the greatest shape from what ive seen. |
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| Dr. Z |
| quote: | Originally posted by simms327
So i decided to give this FAZ/FAS option a try
into this:
30 x FAS P JUN 9.00
30 x FAY P JUN 5.00
The prices on these options are even more volatile than the ETF.... |
Another thing to keep in mind is, options expire, which means that their value degrades over time. A lot of people under estimate time degredation. If your stock is staying flat, or even increasing at a small rate, your call options can still fall in value; whereas your puts fall much more quickly. |
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| DigiNut |
| quote: | Originally posted by Nrg2Nfinit
I don't know exactly how thats calculated but it must be a fraction of the outstanding shares/cancelled shares and newly issued shares. |
Dilution is minimal due to the fact that Cambrian already had a 34% interest in Western's shares, according to their release.
The dilution isn't so hot, but on the upside, they're also getting back $29 million worth of their bonds.
I could have sold at $1.47, but I have a pretty small stake in Western. It's one of my long-term, maybe-it'll-be-a-five-bagger things. Hell, most of the coal industry has doubled in less than a month, and Patriot has tripled (short squeeze today as I predicted!).
| quote: | Originally posted by Dr. Z
Another thing to keep in mind is, options expire, which means that their value degrades over time. A lot of people under estimate time degredation. If your stock is staying flat, or even increasing at a small rate, your call options can still fall in value; whereas your puts fall much more quickly. |
Not to put too fine a point on it, but I think this is common knowledge. If options didn't expire then nobody would write them. The point of the FAS/FAZ mock-straddle is that the underlying equities also depreciate over time, making puts more valuable than calls.
Anyway, the depreciation on options for volatile stocks like FAZ is not that significant; fluctuations in the share price itself will dwarf the time dependency. If you'd normally day-trade the equity, it's a reasonable assumption that you'd hold options for a maximum of a few weeks (unless you are playing the decay, in which case you'd likely buy leaps). |
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| Nrg2Nfinit |
| quote: | Originally posted by DigiNut
Dilution is minimal due to the fact that Cambrian already had a 34% interest in Western's shares, according to their release.
The dilution isn't so hot, but on the upside, they're also getting back $29 million worth of their bonds.
I could have sold at $1.47, but I have a pretty small stake in Western. It's one of my long-term, maybe-it'll-be-a-five-bagger things. Hell, most of the coal industry has doubled in less than a month, and Patriot has tripled (short squeeze today as I predicted!).
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I hope its iminimal though.. i saw it go from 1.47 to 1.37 today lol. The float percentage is up too which apparently should make the stock less volatile.
Lets see what happens. |
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| dEsidEL |
| quote: | Originally posted by simms327
FAZ/FAS option |
+1
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