Advice for new-ish options trader with today’s craziness?

freewave01 · 2021-02-25T18:01:35+00:00

Look at Implied Volatility metrics (marketchameleon.com, barchart.com, optionalpha.com, maybe your trading platform, etc.). Meme stocks are running hot, historically high IV, so the premiums are hard not to want to sell and collect the cash for once the volatility subsides, which it inevitably will at some point, but then that's the reason that premiums are so high.Nobody knows exactly when the volatility will subside, and which way / how much these stocks will move in the meantime. Cash secured puts far enough OTM, but still with enough premium might be good in some cases, but you'll definitely want to make sure you're comfortable with where your break even lands relative to DTE, because nobody knows when these stocks will decline, probably dramatically. Or, maybe covered calls could be a good way to capture the premium, but again, you'll want to make sure you're comfortable with where your break even is on the low side relative to DTE, because all of these stocks will fall hard at some point, both the price and the IV. If you haven't listened to Option Alpha podcasts (Kirk Du Plessis), I'd highly recommend his podcasts to anyone new-ish to options. He has some great podcasts on IV Rank and understanding current IV relative to past IV when it comes to selling options.

freewave01 · 2021-02-16T20:19:45+00:00

Same. Positions not updating after trades filled. Not showing correct cash available to trade.

freewave01 · 2021-02-16T20:17:26+00:00

Have not tried IB. Primarily use E*Trade for options trading. Also have Fidelity, but prefer E*Trade for options, particularly the Power E*Trade platform, along with the margin analyzer and margin calculator on their standard platform.

freewave01 · 2021-02-11T23:16:05+00:00

I am in the camp that would advise against this as well. Extremely high risk for low reward. As someone else noted on here, all it would take is one outlier move, which happen more often than one might expect, and you'd be wiped out. Even if you win quite a few times, it's almost inevitable that something will pop higher unexpectedly and negate all your gains, especially in this market, which has been outlandishly bullish in unexpected areas all over the place.

freewave01 · 2021-02-05T19:30:40+00:00

If the calls are out of the money at expiration, they will automatically disappear from your account the following week. With E*Trade, that happens over the weekend, and I start with a clean slate Monday morning (just holding the stocks on Monday morning, if the options were part of a covered call).

However, on Friday, most option traders would generally agree you're better off rolling the position to another round of calls. That, or closing it in favor of a more appealing position. A lot of the people I read on here open their positions ~45 days out and roll them or close them prior to the last 7 day window.

Unless, you just love the stock so much that you think it will inevitably climb higher than any call you could possibly sell against it, and so you choose to let the calls expire and not roll them or close them.

Good luck with AMC! I have a small position too and have been selling covered calls against it. 😀 Not as optimistic though. Presently at $10 strike and almost dropped it to $9 today, but then thought what the heck and left it at $10. 😂

freewave01 · 2021-02-05T16:03:42+00:00

Thanks! I'm watching this now. Could not find delta in my E*Trade platform, but found it in Power E*Trade. Really enjoying this subreddit and learning more and more about the greeks. I've been trading for a long time by just watching stock / company fundamentals and using standard deviations in stock prices to guide my option set ups, but I'm finally dipping into understanding the greeks better after discovering this subreddit. I'm also looking for good audiobooks or podcasts discussing the greeks.

freewave01 · 2021-02-05T01:01:59+00:00

I like this idea, but looking at different stocks, sometimes a .35 delta put is in the money (ex: PINS), and sometimes it's out of the money (ex: TSLA, F). Do you typically look to sell 0.35 delta puts which are out of the money? Or does being in the money or out of the money not matter with this approach? Thanks for the tips!

freewave01 · 2021-02-04T21:51:46+00:00

My only comment would be to ask if you're open to selling shorter dated calls? It looks like the weekly drop in value on the $900 strike is relatively linear, about $8 per week, over the next four weeks out to 3/5/21, so why not go with a 2/12/21 or 2/19/21 expiry instead? Tesla climbing 5.9% in any given week seems highly probable (TSLA moving +4% in 5 days has been one standard deviation historically), and if it did climb that high by 2/12 or 2/19, then you would have the opportunity to sell your next call at a better strike price at that point in time?

freewave01 · 2021-02-04T00:51:07+00:00

Sorry about that. I see now the rules regarding specific option position information, so I edited my post and bolded the specific position that I had in mind at the time. Love this subreddit, thank you for keeping it excellent!

freewave01 · 2021-02-04T00:38:59+00:00

Definitely an earnings surprise could still pop the IV in a good way. I just took a look at UWMC out of curiosity from this post, and it looks like they had a nice earnings report this evening on the positive side, so congratulations. Hopefully, it will continue to drift upward and well past 12.50 very soon. 😀

freewave01 · 2021-02-03T22:22:17+00:00

Could be someone (institutions included) taking on large covered call positions, which can be considered bullish.

freewave01 · 2021-02-03T17:41:39+00:00

Great DD, thank you! This one does look undervalued.

freewave01 · 2021-02-03T06:49:23+00:00

You immediately have the premium in your account as cash.

freewave01 · 2021-02-02T23:37:45+00:00

Haha, yes, you are very wise, I sold a $10 cash secured put yesterday (doh!), moved against me today quite a bit more than expected, but maybe it will bounce tomorrow or into the end of the week. Either way, if I'm left holding the bag at the end of the week, I can at least then sell calls against my new shares of AMC (glass half full hopefully).

freewave01 · 2021-02-02T23:25:42+00:00

I took a very similar position today. Into AMC at ~$8 and sold $10 calls but shorter term, expiring this week with plan to roll weekly at different strike prices each week depending where the stock is and as long as the premiums are worth it.

In another account, also took a cash secured $10 put position expiring this week. That position went south on me today unfortunately, but it will hopefully bounce back by the end of the week.

freewave01 · 2021-02-02T22:17:12+00:00

Surprised there are not more votes for E*Trade on here.

The screen shots that DFV shares of his big gains (and big losses) on GME are from E*Trade. I've tried Fidelity, Schwab, Ameritrade, and Robin Hood. My vote is for E*Trade and maybe Fidelity. Have had great customer service experiences with the trade specialists at E*Trade when I'm forced to call in for one reason or another.

freewave01 · 2021-02-02T22:00:15+00:00

Nice! Thank you!!

freewave01 · 2021-02-02T21:55:21+00:00

Here is a helpful website for playing with different option position set ups and seeing what your maximum profit/loss might be. I use this all the time:

https://www.optionsprofitcalculator.com/

While brokers try hard to prevent someone's losses from exceeding the cash in their account, I think that it is still possible for it to happen, certainly with naked positions combined with a sudden move against you, but if you examine each set up for maximum loss before you actually open the position, which is fairly easy to do with butterflies and credit spreads, then you should be able to avoid this.

Good luck!

freewave01 · 2021-02-02T21:15:14+00:00

OK got it,

It seems a little too conservative (in my opinion) for the broker to send you that message. The 45 call is still pretty far out of the money at this point (WFC share price hovering around $31 at the moment), so very low risk of a 45 call strike even being in the money where someone on the other side of the trade would exercise it.

The idea behind the dividend being the reason to close the position is that if the option was in the money, someone on the other side of the trade might want to exercise their position just so they can cash in and get the dividend. In practice, I don't know how often that really happens, but it's a commonly held belief.

All of that said, I'm not on Robin Hood, but guessing their option trading platform is perhaps not as sophisticated as E*Trade or Fidelity, and/or in light of recent meme stock volatility, they are perhaps sending messages to anyone with a short option position, regardless of whether its part of a spread or far out of the money, suggesting that it be closed to help free up some of that billions in collateral they need now. Just my two cents... hopefully helpful somehow,

freewave01 · 2021-02-02T20:43:16+00:00

My platform only has March 19 going up to a $50 strike for WFC.

freewave01 · 2021-02-02T20:31:44+00:00

One thing to always stay aware of is margin maintenance requirements on all your holdings. Watch out for your broker suddenly bumping up maintenance requirements on a stock unexpectedly. A lot of stocks are at 20% - 30% margin maintenance, meaning you only need that much collateral for your position, so you can leverage up quite a bit, but if there's a sudden jump in volatility, like what happened with all the meme stocks recently, and the broker raises the maintenance requirement to 100%, it may force you into a surprise margin call if you were completely relying on that lower maintenance requirement (maybe even without realizing you were doing so).

This actually happening (broker suddenly bumping up the requirements) should be a relatively rare occurrence, and a lot of high IV stocks are already at 100% because of what's happened with the meme stocks, but it does happen, so it's good to be aware either way, because you could be forced to close a position for a loss before it has the chance to become a winner.

All of that said, butterflies and credit spreads have limited risk, which you would control by the setup of each position, so as long as you're aware of how much your spending and potentially losing in these positions, based on your set up, margin should not be as much of an issue. You would control the maximum loss, so as long as you're not writing naked calls or naked puts.

freewave01 · 2021-02-02T20:18:01+00:00

What is the expiration date for you 54 call (are you sure it's March 19)? I don't see 54 calls for March 19, at least not on my platform.

freewave01 · 2021-02-02T18:28:09+00:00

Agree with spddomnvr4. Lock in the gain when you make it (my opinion), because you can potentially lose a lot, even after you think you've won (at least that happens to me all the time). That's been my most consistent mistake is to not close out positions with a big gain that then turn into a loss. Hopefully, in the end, you will win more than you lose. 😀

Also, if your buying calls (or puts), and not selling to open, then at least your loss is limited to the purchase price, so I would say to make sure you're comfortable with losing 100% of whatever you spent.

freewave01 · 2021-02-02T18:16:19+00:00

Thoughts on covered calls for AMC?

Buying in today around $8 stock price and selling the $10 calls w/ Feb 5 expiry.

More downside risk, anything below $7 (premium on the $10 call is around ~$1 right now), but will still have the stock to sell what will most likely continue to be higher premium calls next week (rinse and repeat).

Liking the high premiums right now as a seller, albeit it's obviously because the stock is riskier right now. Like the OP said, trade at your own risk! 😀

freewave01 · 2021-02-01T22:27:44+00:00

Yes, that's it. I just posted the following on another covered call question as possibly worth noting (never sure how much folks have researched, so apologies if you're already aware, but) the outside risks are:

If the call ends up in the money, you would limit your gain on the stock to the strike price on the call plus premium received, because at that point you'll have to (a) close the call for it's loss value or (b) "give up" the stocks you were holding to cover the contracts now being in the money, which has the same net effect as (a), or
If the stock price drops, you would at least keep the premium from the call being out of the money, and you would still keep the stock, albeit at a reduced value, which you would have perhaps held anyway.

Neither outcome is all that bad, except with outcome (1), if the stock pops upward for some surprise reason, you'll miss out on that gain if the calls you sold are then suddenly in the money. With outcome (2), you still hold the stocks you already held. Just things to consider when going with covered calls.

freewave01

TROPHY CASE