# Option Traps and Gotchas



## sails (29 November 2008)

I'll start this thread off with a shapshot of Friday morning's course of sales for ANZ.  ANZ closed at exactly $14 on Thursday (Nov08 expiry) and some think their short options are safe from being assigned.  See below for the list of $14 options exercised.  

The codes EP and EC obviously distinguishes whether they were puts or calls.  

The biggest danger of being assigned is that you either end up owning the underlying shares or are short them, leaving full exposure to any overnight gap.  Probably even worse for credit spreads where the short side is assigned  and the long one expires worthless.  What was a limited risk trade is no longer protected.

Also, most option brokers automatically exercise in-the-money positions.  How much ITM can vary between brokers, so it pays to know their policies.  If long are long an option that is 1c or so ITM and it's not worth incurring fees to close, it would be advisable to check with your broker and request them not to auto exercise if necessary.

Will add to this thread as time allows - hopefully others will also add any useful nuggets and experiences to this thread ...


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## cutz (29 November 2008)

Hi sails, good idea for a thread,

Its interesting how quite a few $14 series where assigned, if I were short I probably would have slept well that night thinking I was safe, I assume those exercise/assignments were result of arbitrage positions? that may have ended up half baked in the end.


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## wayneL (29 November 2008)

sails said:


> I'll start this thread off with a shapshot of Friday morning's course of sales for ANZ.  ANZ closed at exactly $14 on Thursday (Nov08 expiry) and some think their short options are safe from being assigned.  See below for the list of $14 options exercised.
> 
> The codes EP and EC obviously distinguishes whether they were puts or calls.
> 
> ...



...called "pin risk", when you don't know whether you'll be assigned on your short option or not.

Great idea for a thread M.


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## wayneL (29 November 2008)

Another gotcha is volatility crush/rush AKA vega risk.

This catches many unawares particularly as there are option "education" companies out there promote dodgy strategies in the name of sales. (No strategy is dodgy, but the circumstances can be)

Example:

One prominent mob of clowns as part of its introductory seminar, promotes the buying of straddles immediately before price sensitive announcements, to profit from a move in either direction. 

Sounds like a good and clever idea.

The Problem:

Those options start getting jolly expensive as a) market makers price in the likely magnitude of the move, and b) speculators who've been to one of these introductory seminars (there's thousands of them) start bidding up the straddle. The whole option chain rises due to arbitrage.

You only profit if the magnitude of the move exceeds the volatility priced into the options. If it doesn't, you lose heaps of premium, even if it moves somewhat. This is called volatility crush.

Gotcha.


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## sails (29 November 2008)

wayneL said:


> Another gotcha is volatility crush/rush AKA vega risk...




And while on volatility crush/vega risk - placing calendar spreads where the purchase of long, further out options when IVs are high and likely to fall.  (Markets are currently in this phase now where we have had exceptionally high IV and large percentage falls are likely if the markets continue to rise at a steady pace.)

Options further out in time have much higher vega readings than those closer in time - meaning they can lose significantly with a large drop in IV and any selling of the front month could be hard pressed to repay those losses.

It's also a trap for scared stock holders who decide to buy put protection on the lows when IV is usually the highest...


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## jackson8 (29 November 2008)

original quote from 
sails

Options further out in time have much higher vega readings than those closer in time - meaning they can lose significantly with a large drop in IV and any selling of the front month could be hard pressed to repay those losses.


so on the flip side of the coin long dated options would have the present iv factored into them 
have noticed lately some far dated puts which are way out of the money with quiet hefty premiums attached

example
mqg June o9 $10 put with a bid of $0.80
i was tempted to sell 1 contract into this but at the time not sure about the long term commitment
wondering others thoughts on this


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## sails (29 November 2008)

jackson8 said:


> ...
> so on the flip side of the coin long dated options would have the present iv factored into them
> have noticed lately some far dated puts which are way out of the money with quiet hefty premiums attached
> 
> ...




Yes Jackson, you are correct on the flip side.  However, it looks like MQG goes ex-div before June 09 expiry and this would be adding some premium in those puts in addition to the high IV premium.  So that 80c is not all IV.

If MQG stays continues up or sideways, it could be a good trade.  However, if it goes down, not only will further IV increases hurt the position, the dividend factor will also increase the premium significantly as it moves closer to the money.

It would pay to enter all the correct imputs into Hoadley (incl. estimated dividend and dividend date) to get a visual picture of the risks otherwise hidden in that trade.


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## sails (29 November 2008)

cutz said:


> Hi sails, good idea for a thread,
> 
> Its interesting how quite a few $14 series where assigned, if I were short I probably would have slept well that night thinking I was safe, I assume those exercise/assignments were result of arbitrage positions? that may have ended up half baked in the end.




Not sure exactly why they are exercised, Cutz - just know that it does and has been for the 5 years I've been trading options.  NAB was another this month - closing at exactly $19 and there were $19 options exercised the day after expiry.

My guess is that it may be part of MMs closing positions...


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## jackson8 (29 November 2008)

sails said:


> Not sure exactly why they are exercised, Cutz - just know that it does and has been for the 5 years I've been trading options.  NAB was another this month - closing at exactly $19 and there were $19 options exercised the day after expiry.
> 
> My guess is that it may be part of MMs closing positions...




if in theory the exercise price is $14.00 and the sp price ends up closing at exactly that price could it be that the automated system will close out all positions as theoritically the exercised price has been reached 

in other words does the system recognise it as such because it is the exercise price

not sure if this makes any sense


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## Ageo (30 November 2008)

Quick question, does anyone here use options for longer term trading (2-5yrs?)?


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## mazzatelli1000 (30 November 2008)

Some positions need good timing

When I started I anticipated a for example rally and put on a bull call spread with a month to expiry- because its a bullish position (derrr). After a few days the rally occurs, and I look at my spread and it has hardly widened out. Later on the underlying reverses and the spread is worthless.

The same goes for OTM butterflies - on Hoadley's analysis shows it is cheap and on expiration the return is great. But if the underlying gets to the ATM strikes well before expiration - the spread is hardly profitable. 

I got the direction right, but my timing was off

Gotcha


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## mazzatelli1000 (30 November 2008)

jackson8 said:


> if in theory the exercise price is $14.00 and the sp price ends up closing at exactly that price could it be that the automated system will close out all positions as theoritically the exercised price has been reached
> 
> in other words does the system recognise it as such because it is the exercise price
> 
> not sure if this makes any sense




Well, if you look at IB and OX - the instructions are that they will automatically exercise any options $0.01 ITM - in this example $14.01.

So the $14 strikes wouldn't be exercised hence the pin risk problem - otherwise no one would worry if it were automatic. 
I also suspect its the MM's as well.....


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## cutz (30 November 2008)

Double and triple checking the order pad before pushing the trade through, it got me a couple of times.




Ageo said:


> Quick question, does anyone here use options for
> longer term trading (2-5yrs?)?




Not me personally, 1 month is the norm in my case. This gives me room to maneuver.


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## cutz (30 November 2008)

Another one that nearly got me was relying to much on TA, early Sept 40 seemed like a good area of support and IV seemed high at the time for MQG, so I put on a couple of naked short puts, well the price plunged through 40 then the short sell ban came on which pushed MQG back up so I got out even but it was enough to give me a little fright.

Two valuable lesson learned, use TA as only a guide, (I know I’m gonna cop it for this)

And don’t go in without some sort of hedge, or wing especially on stocks.


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## jackson8 (30 November 2008)

cutz said:


> Double and triple checking the order pad before pushing the trade through, it got me a couple of times.
> 
> 
> 
> ...


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## sails (30 November 2008)

Ageo said:


> Quick question, does anyone here use options for longer term trading (2-5yrs?)?




Sorry Ageo, I'm front month mostly - better liquidity.  If IV levels are looking OK (ie. low and likely to rise again) - short term calendars work quite well.

I don't like going too far out because of horrible liquidity (in the Oz market) and slippage.  Also, if one gets IV wrong, it can do lot more damage further out.




cutz said:


> Double and triple checking the order pad before pushing the trade through, it got me a couple of times....




Yes - been caught a few times as well.  I remember one classic a few years ago now and was very new to options.  Wanted to put a double butterfly on NCP (now NWS) which had very liquid options at that time.   On the day this happened, BHP and NCP shares were ironically trading at exactly the same price and were moving almost instep throughout that trading day.  

This was the most complex order I had ever done and there were no spread facilities - was with AOTonline and had WebIress and it all had to be legged in online.   I carefully worked the order in one by one in such a way that I was hedged as much as possible while I built the trade.

Got to about the last leg when I realised I had been so carefully entering all my orders in BHP.  I felt sick, because the analysis had been based on NCP   I ended up losing a bit out of it because the mistake clouded my judgement over the following couple of weeks.  However, if I had traded it without that crippling fear, BHP actually made a large move up - enough to close the short puts and roll up the lower long calls.  Then it proceeded to fall heavily and would have made quite a windfall on the way back down.  It was actually the best one to have put this trade on!

One of the problems with these types of multi-leg positions which need adjustments to profit are Aussie brokerage and exchange fees - can really put a hole in the profit.

Lots of lessons from that trade - some practical ones but mostly how much fear can interfere with the ability to think clearly...


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## sails (30 November 2008)

jackson8 said:


> i am with commsec and before i hit that execute button i always check the estimate first to check the dollars and make sure am doing the right trade
> 
> with sell to open, buy to open ,buy to close and sell to close its quite easy to make a mistake especially for a novice like myself




I found a simple checklist for options taped to the monitor helped eg:

Account

Stock

Buy/Sell

Open/Close (if needed*)

Month

Strike

Call/Put

Quantity

Entry price (high for credit / low for debit)

Total amt

* re Open/Close above - my WebIress doesn't bother with open/close.  Much like stock and futures, they automatically close out.  eg if short, buying that same option will close it.


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## wayneL (1 December 2008)

Ageo said:


> Quick question, does anyone here use options for longer term trading (2-5yrs?)?



I don't believe options are optimum for "set and forget" strategies of that time frame.

However, I believe if you have a 3-5 year outlook and goal, but actively use options around a base share holding (or phantom holding ) to protect, achieve and enhance, options are ideal.


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## Ageo (1 December 2008)

wayneL said:


> I don't believe options are optimum for "set and forget" strategies of that time frame.
> 
> However, I believe if you have a 3-5 year outlook and goal, but actively use options around a base share holding (or phantom holding ) to protect, achieve and enhance, options are ideal.




Well Wayne basically i wanted a better alternative to investing in shares (i.e not having to outlay huge sums of cash etc....) im talking about buying direct call (and puts if opportunity arises) options in the view of a big move (but trying to guess in short term is kinda hard thats why i choose longer term options).

For instance we all know the market will bounce (when will it happen who knows), and some stocks will probably rocket in the next few yrs, so id rather outlay a couple of thousand in premium and know thats my maximum loss (instead of buying the share outright and increasing my risk and profit potential).


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## sails (1 December 2008)

Further to my original post on this thread, I should point out that not all options at $14 would have been exercised.  

Went back and had a look at the stats for ANZ $14.  On Thursday morning, there was open interest of 433 for calls and 325 for puts.  Volume for the day was calls 204 and puts 173.  Volume may not may not be all closing out volume - there could have been some trading in and out around that $14.

For simplicity, if we assume that the volume was closing out that would leave 229 open interest in calls and 152 in puts.  Only 30 calls were exercised and 71 puts - so a lot expired worthless.  What we don't know is if the MMs were predominantly short or long - so we don't know how many retail traders were assigned on their short positions.

The main thing is to be aware of the possibility and if short in this instance, IMO it would pay to close it out to be safe.


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## cuttlefish (1 December 2008)

cutz said:


> Double and triple checking the order pad before pushing the trade through, it got me a couple of times.




Agree  ... especially if the codes for the particular series have combinations of '1's,  'I's and 'L's.


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## wakk (8 December 2008)

sails said:


> ..
> The biggest danger of being assigned is that you either end up owning the underlying shares or are short them, leaving full exposure to any overnight gap.  Probably even worse for credit spreads where the short side is assigned  and the long one expires worthless.  What was a limited risk trade is no longer protected.
> ..




Hi sails,

I'm new to relatively new to options

With regards to the credit spread, could you please explain what you mean by the the long position expiring worthless (wasnt the long position a hedge?)? 


thanks


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## jackson8 (8 December 2008)

wakk said:


> Hi sails,
> 
> I'm new to relatively new to options
> 
> ...




from my understanding the hedge which is the long option expires that afternoon at end of trading day whereas the short position if in the money is assigned the following morning so if there should be some adverse ann. or just a bad overnight on the dow there could be a gap down in sp which means the shares you have been assigned would have a lower value which would go against you if you wanted to sell them straight back into the market

hope that makes sense
please correct me if it isnt as i have never been assigned


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## jackson8 (8 December 2008)

just a quick question

does a takeover bid have any effect on already sold short positions
specifically in my situation sto as have sold a few otm puts expiring Feb and March

regards
Gary


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## sails (8 December 2008)

wakk said:


> Hi sails,
> 
> I'm new to relatively new to options
> 
> ...




Yes wakk, the long is the hedge.  However in a credit spread, the long is further out of the money (or further away from the share price) than the short option.  (Debit spreads are the reverse and could be where the confusion is.)

eg. XYZ stock at $10.  Bull put spread (AKA put credit spread) with the short option at $7 strike and the long at $6.50.  If the underlying share closes at $6.60 on expiry day, the short option would be 40c in the money (you would have to pay that to close it in this example) and the long at $6 is totally worthless and would expire as such.

Again, using the above example, if the short put is not bought back to close it out, then the possibility of being assisgned is extremely high.  That means you could have 1000 shares of XYZ in your account the next day for every put option contract you were short.  As the $6 long put expired worthless the day before, there is now no protection whatsoever on those shares.  What was a limited risk trade is now wide open to whatever the market dishes up.  If the market gaps down heavily the day after expiry, it could mean a much larger loss than you had bargained on.  However, if it gaps up - it's your lucky day 

It all comes down to how much risk you are prepared to take on...


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## wakk (8 December 2008)

sails said:


> .. long put expired worthless the day before, there is now no protection whatsoever on those shares.  What was a limited risk trade is now wide open to whatever the market dishes up.  If the market gaps down heavily the day after expiry, it could mean a much larger loss than you had bargained on.  However, if it gaps up - it's your lucky day
> 
> ...




Thanks for the quick replies guys

Just so that I understand this correctly, are you saying we wont know that we have been assigned until the next day. By that time, it is too late to exercise our long/hedge puts (which expired the day before).

So this is more of an issue on expiration day, and not so much of an issue if we are assigned before expiration day.

Have I understood that correctly?

So on expiration day, we need to make a decision on closing out short positions.


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## sails (8 December 2008)

wakk said:


> Thanks for the quick replies guys
> 
> Just so that I understand this correctly, are you saying we wont know that we have been assigned until the next day. By that time, it is too late to exercise our long/hedge puts (which expired the day before).
> 
> ...





Yes Wakk - you've got the general idea 

If assigned before expiry day when you are in a credit spread, it is a nuisance and can be costly on fees, however, the long is still there to protect either the short put or the long shares.


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## cutz (8 December 2008)

Hi 

In my case i wouldn't find out until the wee hours of the day after expiry when i get my trading statement, normally it comes at night but on ex day it takes longer to arrive.


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## cutz (8 December 2008)

jackson8 said:


> just a quick question
> 
> does a takeover bid have any effect on already sold short positions
> specifically in my situation sto as have sold a few otm puts expiring Feb and March
> ...




Hi gary

If i had short puts on a company to be later subject to takeover i would expect the position to become extremely profitable.


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## sails (12 December 2008)

Looks like another gotcha has surfaced - if the underlying stock is in a trading halt or suspension on expiry day it can cause quite a few problems.  Check out this thread for more info: https://www.aussiestockforums.com/forums/showthread.php?t=13679


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## chops_a_must (12 December 2008)

I was going to raise that question here...

What happens if the stock is in a halt like this, do the options still exercise on the date?

If so, any short position no matter where, would probably be exercised would it not?


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## sails (14 December 2008)

chops_a_must said:


> I was going to raise that question here...
> 
> What happens if the stock is in a halt like this, do the options still exercise on the date?
> 
> If so, any short position no matter where, would probably be exercised would it not?




Hey Chops - at lot has already been discussed in this thead: https://www.aussiestockforums.com/forums/showthread.php?t=13679

Looks like it's not an easy position to be in and perhaps we will all know more after expiry on Thursday.  I have never experienced a situation like this myself, so I'm interested to see how it turns out for xtanda.


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## sails (17 December 2008)

For anyone interested, here's a link to how ABS (ABC learning) options are being treated if ABS is still in voluntary adminstration on expiry day.  http://www.asx.com.au/products/pdf/notices/2008/Clm23408.pdf

It appears that each time series will be cash settled at their expiry date with restrictions on exercise also.  Cash settlement will be based on the share price being zero.  Not good for Dec short puts  

And as I have mentioned before, it would be pretty difficult for put calendars under these circumstances if one has to find the cash to finance the front month puts and have to wait a few weeks or months for expiry to be compensated on the long.  It would be easier if they just cash settled the lot - I guess they have their reasons for dragging it out.


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## cutz (25 December 2008)

G'Day Everyone,

Thought I take a break from the Christmas Mayhem.

Lately I’ve been having a look around for an index fund that tracks the S&P 500, initially i looked at iShares IVV listed here on the ASX but i don't like the idea of having cash tied up in a non optionable product, next stop is SPY listed in the US, as i am not familiar with futures i would feel a little more comfortable using SPY as my first US index type options trade.
Eventually I may want to own some SPY so I’ve download the fact sheet and the prospectus for when I’ve got some spare time.

But in the mean time I was wondering if there are any big gochas on the US market, in particular SPY options and the underlying itself, the one that’s concerns me a little is currency risk if I eventually own the fund as the aussie dollar is looking a little unhealthy at the moment.

Any Thoughts?

Thanks in advance.


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## wayneL (26 December 2008)

cutz said:


> G'Day Everyone,
> 
> Thought I take a break from the Christmas Mayhem.
> 
> ...



Hi cutz,

The only issue I find with SPY is that; because SPY is an actual share and you can be long the underlying, cost of carry and dividend is priced into the options, whereas it is not with SPX or ES options.

No biggy as long as you're aware of it. Otherwise, great liquidity and very tradeable.


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## cutz (27 December 2008)

Hi Guys,

I've just discovered STW (ASX200 SPDR) thanks to WayneL.
I was just wondering if anyone has traded these, i notice they are listed on the Australian Warrants Market, (according to iress).

I was also looking on feedback if anyone has traded the options on these,  iress is showing 0 open interest on just about all of the series so i was wondering if the MM's come on board if a quote was requested.

When the time is right i may want to write short puts on these but if there is no liquidity another option is to buy STW and short some XJO calls,

Any gotchas?

Thanks in advance.


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## Smallprofits (9 January 2009)

cutz said:


> Double and triple checking the order pad before pushing the trade through, it got me a couple of times.
> 
> 
> 
> ...




What about a long call position, would you go longer term then? I have not yet but was today thinking of taking long position in RIO  - only problem it is not cheap - even with excerise of $75+ anything 1 year or more out is not cheap....


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## cutz (9 January 2009)

Smallprofits said:


> What about a long call position, would you go longer term then? I have not yet but was today thinking of taking long position in RIO  - only problem it is not cheap - even with excerise of $75+ anything 1 year or more out is not cheap....





G’Day Smallprofits,

Me personally I wouldn’t feel comfortable going long on a RIO call, firstly as you pointed out they’re pretty expensive at the moment due to high IV, and I wouldn’t feel 100% confident that it’s going to keep trending up sharply so I could still end up losing money even if the stock rallies slowly, so to answer your question and if I didn’t own any BHP shares I would rather be shorting RIO puts and I wouldn’t be going out further than one month.

Note, personal opinion only if i had to choose between going long on call or shorting put, not advice.


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## Smallprofits (12 January 2009)

cutz said:


> G’Day Smallprofits,
> 
> Me personally I wouldn’t feel comfortable going long on a RIO call, firstly as you pointed out they’re pretty expensive at the moment due to high IV, and I wouldn’t feel 100% confident that it’s going to keep trending up sharply so I could still end up losing money even if the stock rallies slowly, so to answer your question and if I didn’t own any BHP shares I would rather be shorting RIO puts and I wouldn’t be going out further than one month.
> 
> Note, personal opinion only if i had to choose between going long on call or shorting put, not advice.






when you say not more than a month is this just due to uncertainity of RIO future?

or woudl you generally only go a month out?


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## cutz (12 January 2009)

Smallprofits said:


> when you say not more than a month is this just due to uncertainity of RIO future?
> 
> or woudl you generally only go a month out?





G’Day Smallprofits

I definitely haven’t got an opinion on RIO's future. It’s just that I only prefer to sell premium (if certain conditions are right) and I’m always a lot more comfortable going out one month because I may have a fair idea of where a particular stock or XJO is not going to go in that short amount of time. If I’m wrong defensive action is not as painful.

Having a short position on for longer periods is a lot risker, predicting stock price 3 or 4 months out is tricky if not impossible. If things go wrong with 2 months remaining on the contract, correcting that position could turn into a nightmare, especially in my case as I don’t use delta adjustment techniques, mainly due to brokerage costs but this is something I’m  working on. (I’m also looking fwd to WayneL’s thread on this)

Please note these are only my views, there are obviously experienced traders around that put on long term contracts, but I’m still on training wheels so short term is for me.


BTW shorting RIO puts is a bullish position.


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## Smallprofits (13 January 2009)

Ageo said:


> Well Wayne basically i wanted a better alternative to investing in shares (i.e not having to outlay huge sums of cash etc....) im talking about buying direct call (and puts if opportunity arises) options in the view of a big move (but trying to guess in short term is kinda hard thats why i choose longer term options).
> 
> For instance we all know the market will bounce (when will it happen who knows), and some stocks will probably rocket in the next few yrs, so id rather outlay a couple of thousand in premium and know thats my maximum loss (instead of buying the share outright and increasing my risk and profit potential).





My thourghts exactly, cheap way to go long on a stock you like, surely?


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## wayneL (13 January 2009)

Smallprofits said:


> My thourghts exactly, cheap way to go long on a stock you like, surely?




It's cheap at the right price. If you pay high volatilities, it's very expensive.

You can go deep ITM and tame some of the theta and vega, but then you are paying up more for intrinsic value. More expensive, but cheaper.


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## jackson8 (13 January 2009)

Hi all 
Have two questions to ask before I take the plunge into index options over xjo 

Firstly have heard mention that when you sell a index call you can be liable to pay dividends........please explain

another is a forum contributor who spoke of receiving a huge bill as the company announced a buyback I recall it may have been sold call over RIO.......please explain

with thanks 
gary


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## wayneL (13 January 2009)

jackson8 said:


> Hi all
> Have two questions to ask before I take the plunge into index options over xjo
> 
> Firstly have heard mention that when you sell a index call you can be liable to pay dividends........please explain
> ...



There are no dividends payable or liable when you own or write options. However, when a dividend is paid by a company, the option price will adjust acordingly. 

See my blog post here: http://sigmaoptions.blogspot.com/2008/05/effect-of-dividends-payable.html



> The fifth input into the Option Pricing Model is dividends. If the underlying pays no dividend, then there is no effect on option prices. However if the stock does have an upcoming cash dividend payable, it will have an effect on option prices. It is very important to be aware of this, as many a neophyte option trader has been caught out by thinking an arbitrage opportunity existed with mis-priced options, when in fact the pricing anomaly was due to an upcoming dividend; hence not an anomaly at all.
> 
> The reason for this is that option holders are not entitled to participate in cash dividends, so option prices must compensate.
> 
> ...




Indexes don't pay dividends so it is not a factor at all.


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## jackson8 (13 January 2009)

wayneL said:


> There are no dividends payable or liable when you own or write options. However, when a dividend is paid by a company, the option price will adjust acordingly.
> 
> See my blog post here: http://sigmaoptions.blogspot.com/2008/05/effect-of-dividends-payable.html
> 
> ...






thanks for that Wayne
has cleared up my uncertainties


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## cutz (20 January 2009)

Hi Guy’s,

A gotcha to add to the list, 

I’ve just been assigned on a short put via my comsec account, this isn’t a big deal, but what i’ve just discovered with comsec is I can’t offload today because it’s not registered against my account yet, even though I received the contract note this morning.

This is the first time I’ve been assigned on a short put and it really got me.


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## sails (20 January 2009)

cutz said:


> Hi Guy’s,
> 
> A gotcha to add to the list,
> 
> ...




Every time I've been assigned, always been able to close out the same day - and that's been with different brokers.  IB insist on it in the first 10 mins of the trading day, so I have no idea what Commsec are up to. 

EDIT:  Did you manage to hedge the stock position, Cutz?


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## cutz (20 January 2009)

I suspect they will show up tommorrow as being available, it will be a nervous wait.


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## sails (20 January 2009)

cutz said:


> I suspect they will show up tommorrow as being available, it will be a nervous wait.




I can imagine ...  Although, if you were assigned, it would appear that there was practically no time value on the short put so the delta would have been getting pretty close to 1 anyway.

If the market is favourable, you will probably gain faster on the shares than on your short put.  If it's not, it is possible that you are not much worse off than if you hadn't been assigned.  All guesswork here...

If you can't get out tomorrow, maybe have a look at buying a cheap put to hedge for a day or so.  Jan puts are getting pretty cheap with expiry next week and you could do that in IB for cheaper brokerage.  Even a wider put spread might give you some peace of mind for a day or two.  

From where I sit, Commsec don't appear to have much idea about Iress or options (see the other thread on Commsec Iress )


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## cutz (20 January 2009)

sails said:


> EDIT:  Did you manage to hedge the stock position, Cutz?




No, not this one, if i was able to sell today i still would have made a small profit, it the stock gaps down tommorrow, not so good.

This was the last off my unhedged puts which I had put on the backburner with the intent of doing a diagonal roll next week.

It took me by surprise as I didn't expect the contracts to be trading below intrinsic, (spreads weren’t showing this week and late last week) 

BTW all comments welcome, stock is WBC if anyone is interested.


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## sails (20 January 2009)

cutz said:


> No, not this one, if i was able to sell today i still would have made a small profit, it the stock gaps down tommorrow, not so good.
> 
> This was the last off my unhedged puts which I had put on the backburner with the intent of doing a diagonal roll next week.
> 
> ...




I think the US markets are closed again tonight, so hopefully there won't be too much movement...


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## jackson8 (20 January 2009)

sails said:


> I think the US markets are closed again tonight, so hopefully there won't be too much movement...




the market is open again tonight 
the holiday was last night
martin luther king jr day

here is a link for holidays for 2009

http://www.nyse.com/about/newsevents/1176373643795.html


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## cutz (20 January 2009)

sails said:


> From where I sit, Commsec don't appear to have much idea about Iress or options (see the other thread on Commsec Iress )




Yep,

You're right about that, the only options i'll end up trading via comsec will be the XJO index contacts, only because IB don't offer them yet.

Also thanks for your thoughts regarding the puts Sails.


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## sails (21 January 2009)

cutz said:


> Yep,
> 
> You're right about that, the only options i'll end up trading via comsec will be the XJO index contacts, only because IB don't offer them yet.
> 
> Also thanks for your thoughts regarding the puts Sails.




Good luck with it today, Cutz.  Hope Commsec lets you close out.  I've got to go out for a while so will check in when I get back - will be interested to see how it pans out for you today...

I'm not sure that a broker is allowed to stop you closing an assigned position - might be worth a call to the ASX and ask for their options dept. (hopefully their CS is better than Commsec!)

PS - there was a really helpful guy in ASX options - if you're not getting the right help I will look through old emails to try and find his name and see if he is still there.


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## cutz (21 January 2009)

sails said:


> Good luck with it today, Cutz.  Hope Commsec lets you close out.  I've got to go out for a while so will check in when I get back - will be interested to see how it pans out for you today...
> 
> I'm not sure that a broker is allowed to stop you closing an assigned position - might be worth a call to the ASX and ask for their options dept. (hopefully their CS is better than Commsec!)
> 
> PS - there was a really helpful guy in ASX options - if you're not getting the right help I will look through old emails to try and find his name and see if he is still there.




I only just managed to just check it out, yep they are now available but of course i am now a proud owner of WBC stock , it's a shame about yesterday not being able to unload, even though the date on the contract note is 19/01/09 + as of 20/01/09.

Thanks Sails but I think I will sit on this one and sell next week if the banking panic subsides, I never would have guessed it took overnight with comsec, I always assumed if I had the contract note it should have been available for sale.


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## cutz (21 January 2009)

Can anybody explain why MQG Jan 30.26 call is selling at such a high volatility (415 %), I’ve got a call credit spread out on this (30.26/32.74), everything checks out so I’m wondering what I’m overlooking.

After the WBC fiasco i’m waiting for another gotcha , but this spread is set up with IB so I should be right.


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## sails (21 January 2009)

cutz said:


> Can anybody explain why MQG Jan 30.26 call is selling at such a high volatility (415 %), I’ve got a call credit spread out on this (30.26/32.74), everything checks out so I’m wondering what I’m overlooking.
> 
> After the WBC fiasco i’m waiting for another gotcha , but this spread is set up with IB so I should be right.




Cutz, if you have a look in Iress depth for that option, it's only a one lot asking 500 ($5).  You can see a one lot TM at 503.5 was cancelled - so it may be something to do with that.  It's obviously ridiculously above any sort of fair value, so I wouldn't let it worry you too much. Most likely will be gone by the morning as any prices left after the options market closes at 4.20pm are uncancelled orders.


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## sails (27 May 2009)

With a little over two hours to go to expiry, below is a snap shot of BHP's call options.  The slightly OTM $35 calls are highlighted showing a fair amount of time value.  There must be a few retail sellers at that strike.  It's not much fun  trying to buy to close a sold option this close to the money on expiry day.


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## dutchie (27 May 2009)

Hi Sails

Isn't expiry tomorrow??


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## sails (27 May 2009)

Yeah Dutchie - I am a day out  

Not trading options this month so not in touch as much as I would normally be.  And have a heap of other things happening plus had to look after a grandkid all weekend, so it feels like the end of the week already - at least that's my excuse!

Even so, that's still a fair bit of premium with only a day to go.  Will see what it's like tomorrow...


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## dutchie (27 May 2009)

Yes it did seem a bit much for only 2 hours to go.

I know what you mean about distractions!

The market is very unforgiving and doesn't take any excuses.

Good luck with that option position. It bounced off the 35.00 level today so it could be ok.


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## cutz (4 June 2019)

Hi You'all.

Re-discovered this excellent thread !

Got caught today and I thought I'll share !

In the process of rolling a bear call (part of a larger strategy) with a local broker, I tried to leg it rather than ring through a four leg combo, (sometimes I pick up price improvements). Bought back the front month and a back month wing early in the day as the oil stock started slipping. After lunch the market took a pounding and I didn't get to sell the back month and front protection, gone from delta neutral to a huge overnight long oil.


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## peter2 (4 June 2019)

@cutz  Oil rallied during the UK session (green) but backed off in the US session (tan). The overnight session is not over yet, but you might have caught a lucky break. No doubt you will be fixing your mistake on the open tomorrow.


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## cutz (4 June 2019)

peter2 said:


> @cutz  Oil rallied during the UK session (green) but backed off in the US session (tan). The overnight session is not over yet, but you might have caught a lucky break. No doubt you will be fixing your mistake on the open tomorrow.




Hi,

Yep there was a healthy rally before I went to bed but met with disappointment when I woke up.


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