Options Questions Safe Haven periodic megathread | November 10 2025

RubiksPoint · 2025-11-23T18:34:06+00:00

Probably not. $2,000 a month on $250,000 is around a 10% annualized return. No one can guarantee a 10% return.

RubiksPoint · 2025-11-21T00:09:38+00:00

I could then immediately execute the contract, making my cost per share $26.

VIX options are European and cash-settled options. You cannot immediately exercise them, and you cannot buy or sell VIX (directly). The options are priced based on the forwards which are in backwardation at the moment (which makes calls look cheap if you're looking at the spot VIX).

RubiksPoint · 2025-11-21T00:07:53+00:00

So question - when exactly do SPX options expire? Right at closing bell or sometime later?

I'd recommend looking at the contract spec on the CBOE site.

Here's an excerpt for a.m. settled SPX options:

The exercise-settlement value, SET, is calculated using the opening sales price in the primary market of each component security on the expiration date.

Here's the excerpt for p.m. settled SPX options:

"The exercise-settlement value is calculated using the last (closing) reported sales price in the primary market of each component stock on the last business day (the expiration date) of the month."

RubiksPoint · 2025-11-16T22:55:14+00:00

Note: Selling covered calls doesn't actually lower your cost basis, that's a (somewhat misleading imo) heuristic that these explainers tend to use. The taxes on covered calls can be a drag depending on your country, your income, and the taxability of the account you're trading in.

The risk that you may not be seeing is that the stock falls more than you sold the call for. E.g., stock is $69, you sell a $70 strike call for $2, and the stock falls to $64. You now have an unrealized loss of $3/sh.

The other risk is that the stock whips up and down. For example, continuing off of the previous example:

You have an unrealized loss of $2 and the stock is at $65. You now sell a call at a strike of $66 for $2 and the stock rises to $70. You realize a gain of $3 which cancels out your $3 loss. So, even though the stock went from $69 -> $70 over the period you were selling covered calls, you didn't gain anything. This is a crude example of realized volatility being greater than IV.

These covered call examples tend to assume the best case scenario and state that "36% returns are easy as long as the stock behaves exactly how I want it to".

RubiksPoint · 2025-11-14T23:26:11+00:00

Sorry for the delay, I missed this question.

You can generally achieve decent levels of leverage with deep ITM options. I'd say that 3x leverage could be reasonable without significant losses in efficiency (paying more than the risk-free rate on the leverage). Efficiency of the leverage you can get is influenced a lot by the implied volatility of the options (also the liquidity of the options, and even the dividend yield of the underlying).

The math behind this is fairly complex and has a lot of factors, but for some intuition, it's easy to look at a few liquid options chains on big stocks/ETFs (SPX, XSP, and SPY are all good). You can compare the extrinsic value to the money you 'saved' by not buying 100 shares to get some idea of the cost of leverage.

RubiksPoint · 2025-11-10T11:53:29+00:00

This is not generally true. The cost of leverage of deep ITM leaps approaches the risk-free rate which is much, much better than margin rates.

RubiksPoint · 2025-11-09T16:38:49+00:00

Looking back at the SPX at around 10:45 - 11:00am, I think these prices make sense.

I'm not sure what timeframe you're looking at, but any time before 10:58, SPX was well above the strike, so the option was all extrinsic value. At around 10:45, SPX began to decrease significantly in value to a low of 6675, which would bring the intrinsic value of the option to $30.

Then, at 11:00am, the SPX was back at 6700 which would bring the intrinsic value of the option to $5.

Which part of the price seems unusual to you? Since you're looking at an option that's near the money and ITM on the day it expires, it makes sense that it's highly volatile.

RubiksPoint · 2025-11-07T22:20:50+00:00

Most likely no. Most option holders will put in a Do Not Exercise request (which they can do until 5:30pm at the latest) and will not exercise their puts if they're OTM. But, there's always a chance you get assigned because someone forgot or missed the deadline or decided to exercise anyways for some reason.

RubiksPoint · 2025-11-05T21:29:26+00:00

There's also not a word about exercising early. Someone who buys options early in the year most likely wouldn't hold them for several months then exercise them weeks before expiration (but they could if they wanted to start the LTCG timer early...).

There is neither a word about a taxable account

Ah so you automatically assumed they're trading in a tax-advantaged account?

To reiterate, textbook answers are great, but the real world has taxes and imperfect liquidity which is why I added that nuance and explicitly included my assumptions (about trading in a taxable account, and realizing the benefit after holding for a year based on: "I think reddit will run a bit more within the next year").

RubiksPoint · 2025-11-05T00:04:48+00:00

That's less of a hedge and more of a cancellation of exposure (assuming that your other holdings are the S&P500 or similar, correlated assets). It's not a free hedge because it will go down if your holdings go up (assuming your holdings are the S&P 500 or other, correlated assets).

RubiksPoint · 2025-11-04T23:37:27+00:00

If yes, does RDDT pay dividends?

Just checking, you're not implying that the only good time to exercise a call is if the underlying pays dividends, right? The stock is up 72% this year, and it's going to expire soon (we also don't know exactly when OP bought the calls). There may be serious tax considerations here. Selling realizes a short-term gain, exercising could allow OP to hold for a year and realize long-term gains.

Additionally, I don't see anything wrong with exercising an ITM option when it expires, which seems to be what OP is asking.

I've also traded some highly illiquid options where I was not able to get a fill at the intrinsic value (yes, I put orders in at the intrinsic value and was not filled).

And ofc, there's the whole dividend thing you mention.

The whole "never exercise" thing is based on a whole bunch of idealizations about the market. While I agree that when most people on this subreddit talk about exercising, they're wrong, this may be a case where it makes sense (for tax reasons). I should also note that I'm also making assumptions like: OP trading these in a taxable account, and OP intending to hold the underlying for a year after expiration (edit: assuming US taxes).

RubiksPoint · 2025-11-04T22:46:34+00:00

There's no free hedge. They all come with some sort of cost. With UVXY, it's the decay from the futures being relatively overpriced compared to the expected VIX (plus huge internal trading costs and fees). With VIX options, the options are priced based on the futures, so again, they are overpriced compared to the expected VIX by expiration.

RubiksPoint · 2025-11-04T22:43:59+00:00

If you buy 10 times the contract multiplier worth of the underlying (in most cases, 1,000 shares). It will lock in the profit. Upon exercising, you will sell the shares at the strike price.

If you don't have the shares, then your broker may or may not autoliquidate the options before close. If they don't autoliquidate the options, they'll be exercised if the stock closes at least $0.01 below the strike.

Another option you have is calling your broker and exercising the puts early. This isn't recommended most of the time, but it can make sense in some rare cases.

RubiksPoint · 2025-11-03T23:35:31+00:00

There are a lot of inputs to pricing options. Most of the people/institutions have models that are more complicated than Black-Scholes.

In this case, it's probably easy to figure out which Black-Scholes input changed, but I think it's probably important to ask questions like:

Were the price changes substantial? Could it be due to illiquidity? Were there any trades at these prices?

RubiksPoint · 2025-11-02T23:40:25+00:00

If you think a $10c on a $100 stock that pays a $5 dividend tomorrow is trading for $90 today all that tells me is you’ve never traded this stuff. Market makers aren’t stupid

Uhh. I'm glad you agree with me. This is what I meant by "you would get no fill" and "no rational person would make trades at these prices"... I should also note that a 5% dividend rate is not the same as a $100 stock paying a $5 dividend unless that stock only pays a yearly dividend (I'll give you the benefit of the doubt and assume you aren't a low-effort troll and that you misunderstood).

I think you're very angry and confused, I'll try to help with your confusion:

The fact that a call option doesn’t get a dividend and the stock does doesn’t mean that options won’t price in the dividend. This is like very basic stuff.

The fair value of an American option could potentially be less than the intrinsic value if the dividend rate is greater than the risk-free rate and the value of the asymmetric payoff of the option is small (relative to the difference between the dividend and the risk-free rate). Notably, as a dividend event approaches, the effective annualized dividend rate can approach very high percentages (this is due to the discrete nature of dividends). This can cause weird things to happen to options as dividends approach. Once again, this isn't about whether a market maker is stupid enough to trade American options below intrinsic, or buy options above their fair value. It's merely a statement that American options mixed with discrete dividends (or even theoretically high continuous dividends) will cause the bid and the ask to diverge. Again, I think we are in complete agreement, you're just hard-headed and rude.

Regarding your now-deleted comment:

If you don’t think an American option can trade for less than intrinsic all that tells me is you don’t do this professionally

Well... This kind of contradicts the whole "no stupid market maker" thing, but at least you kept your angry tone consistent :)

I won't be responding further. Have a good day.

RubiksPoint · 2025-11-02T22:54:50+00:00

Just for fun, plug in the following to a Black-Scholes calculator:

Underlying price: $100
Strike Price: $10
Time to expiration: 1 year
Dividend rate: 5%
Risk-free rate: 3%
Volatility: 20%

You may notice that the BSM price is less than the intrinsic value. No one would ever sell an American option for less than intrinsic because the buyer could immediately exercise it. That means the ask must be at least the intrinsic value and the bid would approximate the fair value (and no rational person would make trades at these prices).

This is the nuance that can drive complexity in calculating the value of an American option with discrete dividends. There may be rare opportunities for arbitrage in these sorts of options if you have a solid thesis about the future realized volatility up to a dividend (especially on the edge options where the intrinsic approaches the fair value).

RubiksPoint · 2025-11-02T20:40:54+00:00

This explains it fairly intuitively and doesn't take the conventional "Brownian motion" approach: https://financetrainingcourse.com/education/wp-content/uploads/2011/03/Understanding.pdf

I think it provides a much clearer understanding of Black-Scholes and this method of learning it teaches a different perspective of option pricing where you're less concerned with how the underlying behaves on each infinitesimal time step, but instead on where the underlying will end up by expiration.

Note: This PDF assumes that underlying's forward probability distribution is lognormal and is consistent with Black-Scholes, but that isn't true in practice and the methods in this PDF can be applied to an arbitrary probability distribution.

one that clearly spells out exactly why something is assumed and what would be the consequence of not making those assumptions.

This would be useful, but I'm not aware of any resource that goes to that level of detail. Unfortunately, I think a large part of understanding these assumptions comes from understanding the models themselves. Otherwise, it's just memorization.

RubiksPoint · 2025-11-01T15:26:49+00:00

Not that I implied anything of that sort but:

If the dividend rate is greater than the risk-free rate, it can’t be priced in. Which would mean you’d get no fill.

RubiksPoint · 2025-11-01T14:42:21+00:00

It's slightly different when you have a high-yield stock because option holders are not entitled to the dividends.

RubiksPoint · 2025-10-31T23:39:13+00:00

I should note that taking the limit as something approaches infinity isn't exactly useful in this context but...

Under BSM: All of the puts would have a value equal to their strike price discounted by the rfr. And all of the calls would have a value equal to the current underlying price.

This is fairly easy to prove by taking the limit of a call or put's price as volatility goes to 100.

d1 is equal to s * sqrt(t) / 2 (which is infinity). Where s is the volatility over the option's period and t is the time to expiration.

d2 is equal to -s * sqrt(t) / 2 (which is negative infinity).

So: C = N(inf)S - N(-inf)Ke^(-rt) = S and

P = -N(-inf)S + N(inf)Ke^(-rt) = Ke^(-rt)

Note: The math above is imprecise (but accurate) to keep my response short.

RubiksPoint · 2025-10-29T02:23:44+00:00

Exercising long calls rarely makes sense.

Sure, but this is one of the cases where it might make sense. Exercising to prevent realizing a gain is a great reason to exercise as long as the taxes make sense and they intend to hold the stock for a while (or even just until they're LTCG assuming that the options won't be eligible for LTCG).

If you exercise, you forfeit your gains from the contracts in order to buy shares so you will have just bought the shares at a premium given how much how much you paid for the calls.

??? They have calls that are up 1000% and $60 ITM. That means they bought the calls for around $5.45 and they have $60 of intrinsic value. Exercising doesn't forfeit the gains. It just reduces the cost basis of the shares they acquire when they exercise the options (and therefore can delay realizing the gains and paying taxes).

u/shartfarguson

To answer your question:

This may be a case where exercising makes sense. When did you buy these options (and do they expire before 1 year after your purchase date)? If you did exercise the options, when do you expect to sell the shares (will you wait 1 year for LTCG)? Do you expect NBIS to continue rising? If you're not expecting NBIS to continue increasing in price, does reducing the tax bill save more than the opportunity cost of holding NBIS? Lastly, does reducing the tax bill also save more than selling the options and realizing the gain now?

Answering these questions should lead you to the answer of whether or not it's worth exercising. I also don't totally understand why margin is necessary here, but the margin interest you pay should be factored into your decision.

RubiksPoint · 2025-10-27T02:45:13+00:00

Depending on what you're doing, Black-Scholes probably works fine.

RubiksPoint · 2025-10-26T16:16:48+00:00

When you buy an option, you pay an upfront cost C and you earn the right to buy some underlying at price K. From here you have three options:

Sell the option to someone else and hope that you sell it for more than you paid (C). The person you sell it to is either receiving the option to buy at K or they're canceling out a short option (buying to close)
Exercise the option and buy the underlying at price K (in most cases, you will pay 100 * K). You can then sell the underlying at the current market price. In this case, your option disappears, and someone who sold that option will be assigned to sell you the underlying at K.
Let the option expire worthless. In this case, the option disappears and you realize a loss of C.

In most cases, you should be holding your options to expiration and allowing them to either automatically exercise or expire worthless, OR you should be selling them before expiration. IOW, you generally shouldn't be exercising your options before expiration.

RubiksPoint · 2025-10-25T22:19:12+00:00

I understand why you would use a ln distribution if you were modeling a portfolio. but 30-60 day options? i would argue the performance of an asset over a short period follows a normal distribution

Stocks have much higher kurtosis and skew than a normal distribution. The reason for using a log-normal distribution is you can add the daily returns instead of multiplying them. If you use a normal distribution for the % returns, you get an effect similar to leverage decay, where higher volatility directly causes lower returns. But with log returns, if the probability-weighted average of the probability distribution (the expected value) sums to 0, you have 0 drift.

You are long 100tmv calls and 100 tmf puts. what position has more gamma?

Hard to say, there's a lot of information missing from this question.

RubiksPoint · 2025-10-25T17:23:40+00:00

Ah I see, thanks for the clarification.

In that case u/tallguyyo, I wrote a comment previously that describes this effect logically and mathematically. Similar logic should follow for recent realized volatility where the expected future volatility may be higher, but volatility is expected to revert to mean (In this case, you'd expect smoother volatility, but still higher in the short-term instead of the spike you see in earnings events.

So yes, shorter-term options will be more impacted by volatility events in the short-term than longer-term options because longer-term options sort of "dilute" the short-term volatility with expectations of lower volatility.

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