How to Close an Options Trade | Options Trading Concepts
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- Опубликовано: 4 окт 2024
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Thanks Mike, I found the video very helpful. I think that while its most important to learn to set trades up right from the beginning, the things we learn from managing or defending our trades which go bad seem to bring us "a ha" moments when definitions suddenly come alive. These moments transform the definitions of delta, theta, the concepts of breaching a strike or two times the credit into real events or forces, which make or lose us money. Your visuals and your explanations help and I appreciate them. Thank you and the others at Tasty Trade!
Thanks Joe! I 100% agree - you can only learn so much from the concepts - more is learned from actually trading! Thanks for tuning in!
Thanks! I would love to see a video on peeling off legs on spreads. Example: When HOOD shot up, I BTC the PUT short leg. Then when HOOD came down, my long PUT leg became profitable too. I won on both legs because I peeled them off during major swings in the stock. A tactical way of splitting/peeling off legs.
Hey mike what about taking profits? I shorted calls w/ 45 days to expiration. I'm up roughly 47% in 2 days. Should I cover or wait a few days?
We usually close our short options at 50% profit, but if we reach a high level of profit in only a few days, we would consider taking it off. I've taken off trades that were only up 10% in one day before. It's really up to you, but the more profit we make the more our risk/reward gets out of whack!
With the spreads you mentioned if it closed below both strikes you might get assigned them both but if my understanding is correct you'd only be assigned on the short strike and Longstrike would expire worthless, correct?
Great video, but it would have been even better if you had discussed taking assignment on the wide strike put spread, and sold calls on the shares (the wheel).
I know it wasn't the topic of this video, but only discussing one method of adjusting a trade keeps people in the dark.
I think it would be better to go over all possibilities to get out of a bad trade.
In an undefined risk trade will it take more margin to roll it for a credit?
If the stock price goes below the put price. Wouldn't you have to worry about someone exercising that option? And not only are you taking a loss on the trade but now need to cough up X amount of dollars to be able to sell how ever many shares at the price below your put? Thanks!
Not necessarily - assignment is rare because the option owner gives up all extrinsic value upon exercising the option. If there is very little extrinsic value, assignment risk is higher. If there is a lot of extrinsic value, assignment risk is very low because of this. Even if you are assigned in a spread, your risk doesn't change. If you don't have the capital for the shares, you can close the shares and sell the option at the same time to exit the position.
@@tastyliveshow Great Thankyou!!
Does volatility have any bearing on your stop loss? Especially in a bull put spread when price goes down, volatility goes up. Therefore your stop might trigger earlier than desired; when price is further away from your sold strike. How do you account for this?
We don't place stop orders on spreads for this reason, as there really is no way to account for this. I'd rather make an alert for where the stock price is relative to the strike price, rather than an extrinsic value expansion triggering me out on an OTM option.
Buying 100 shares ($10) and than same share -sell call ($11)
Can you exiting before expiration date ?
Thanks very much!!
Yep! You can sell the shares and buy back the short call if you want to exit the trade prior to expiration.
Are options like stocks for trading? Ex. If I buy 200 contracts does there have to be a buyer of my contract to get rid of it or can I get rid of the 200 contracts at any time regardless of buyers?
There needs to be a buyer/seller for the transaction to take place. That is why we stick to liquid marketplaces.
Thanks Mike, Awesome
Mike, why are you always just using the strike? I would suggest using the breakeven, because that's the real point where you start to make losses. Also if your orientation is always the strike, you could never apply your strategy on ATM/ITM options. Which leads me to my second question: If you roll out on the same strike, the premium would explode because it's ITM. Would think not mean you are increasing risk by rolling? Example: You have a 20k account and want to risk no more than 1% per trade. So if you initially collected 100$ your max risk is 200$. Let's assume you sold a put at the 50 strike and the price is at 60. Now the price moves against the put to 48, touches the strike and you roll out. Now you sell the 50 strike again, which is now worth 1+2$ for the extra intrinsic value. So for this trade, your max loss at 2x buyback would be 6$. So, by adjusting on the same strike, you are now risking way more than you did before. Is that intended?
This is not the case - if I were to roll the 50 put out in time, I would be buying back the current 50 strike and selling a new one in a new cycle. The intrinsic value transfers between both options, so that is a wash. Nothing changes there.
All I'm doing by rolling out in time on the same strike is adding extrinsic value to the trade, which increases my TOTAL credit and reduces my total max loss because of that.
If you are trying to close at a 2x credit received parameter, you would likely be out of the trade if the stock dropped to 48 anyways, but rolling forward increases credit and reduces risk, it doesn't multiply it.
Ah I get it. Assuming tested means the price hits the strike, the option would be ATM and by definition have zero intrinsic value. Selling a new put ATM then would again have zero intrinsic value. But this trade would now be a very low probability trade.
"Defined Risk" would be credit trades & "Undefined Risk" debit trades?
Incorrect. Defined risk just means limited loss potential. Undefined means unlimited loss potential.
Credit means your buying power increases to perform the action. Debit means your buying power decreases.
I have 100 T shares. I want to sell them as a covered call. This will be my very first Options transaction.
do you roll or close before earnings/ex-dividend dates?
we typically roll before the ex-dividend date to boost the extrinsic value of the option, and push us out of assignment risk for that dividend.
Mike looking swollll lmao do a bodybuilding vid next
LOL I'll see what I can do!
I bought a call option...why and when I exercise or close it. Is there any class on only that subject.
There is not unfortunately, we don't buy naked options because it is a low probability trade, but the concept is very similar to other strategies.
If I have a long call, I would sell it when it increases in value. I could also sell it if it decreases in value to an uncomfortable level.
The only reason I would exercise it is to become long the stock at expiration. Exercising before is unwise because I would give up the extrinsic value of the option.
Is that a bear put or bull put at 8:02
That is a bull put spread - short option is sold for more than the long option is purchased for to define the risk, so the trade is routed for a net credit, and the assumption is the same as if I had sold the put naked, I just collect less and now have defined risk.
i get lost so easily. would probably have to watch it 10 times to understand better
That's fair! The verbiage is one of the hardest things to get over!
In the 3rd example ruclips.net/video/fg9WDm0jHvA/видео.html if it is more like a naked put, with a wide spread, even though it's a defined risk, wouldn't it still be possible to roll it down in strike or out in time ?
You can roll a spread out in time for a credit if the stock is near the short strike, or if it's closer to the short than the long. The wider the spread is, the more space you have for this to be true. You may also be able to roll down and out, but only if the cost of the new long doesn't completely offset the new credit on the short.
@@tastyliveshow Thank you. The key is that the stock is near the short strike in order to roll out / down and the long strike is below the short strike in this BULL put credit spread. Sounds like there is consideration to roll the short only, or the entire spread (the short and long).
How about if it was a BEAR put debit spread (or actually BEAR Put Diagonal), where the LEAP long put strike is opened ATM or ITM and short put is below to keep the debit spread cheaper? Rolling the short put would still apply in the same manner but you could roll all the way down as needed. (i.e. If you are overall bearish on the stock over the future time horizon, and the IV30% is on the lower side (
Defined risk for the win. Too many fools letting dangerous losers run based on "probabilities"
2020 perspective: in a market that goes up forever, just sell naked puts forever. Whenever there is the rare moment where market moves down, roll the puts out forever.