BHP Call Option Question

[Jeffers]

Hi all,

This is my first post here so please be nice

I am new at options trading and I have placed a couple of initial trades to get started but I have a question.

I purchased 2 BHP June 1650 call options at 0.27

Should I sell 2 BHP June 1700 call options (current price 0.12) to reduce my outlay?

I realise that this would limit my upside but that's fine as I would most likely close my 1650 position before BHP reaches 1700 anyway?

My second question ... Right now without selling the 1700s I could close my position on my 1650s at any time and take a profit however if I sell the 1700s would I have to keep the 1650s until expiry? Because if I sell them then I would be naked on the 1700s.

If I sell the 1700s what are my options for closing my position? I guess I could buy 2 1700s to cancel out the sales but that would eliminate the money I made when I sold them.

I put in a sell order on these 2 1650s yesterday at 0.45 but it only reached 0.44 bummer

Any oyher thoughts on this position would be great.

Thanks


Jeffers

 

[DTM]

Hi Jeffers

Regarding selling the $17.00 calls, your broker would require collateral to cover your potential losses. If you have the cash or shares to cover your collateral, then yes, go ahead and do it.

Not intended as advice, but in my opinion, BHP is travelling in a channel and its near its peak. It bounced off the 200 dma but I doubt whether it has strength to carry on moving up.

I could be wrong.

 

[JetDollars]

You don't need collateral to cover your $17 sell position because you have $16.50 to cover.

I think you should alway close for sell position first or at the same time, otherwise you will be naked. Remember running around naked is not a good idea.

 

[DTM]

And don't get too greedy as BHP isn't in a trending situation right now. It has bottomed out at the moment but I don't think you're going to get much more profit at the moment.

 

[bundy]

I know it's your first post - as it is mine - but if you don't understand your own exposure I don't think you should even be contemplating trading options - you're just going to piss away your money.

Also, with slippage and commissions - you are really pissing uphill trying to make money trading just two contracts.

Finally, buying calls on a stock that is in a down trend makes me question your TA ability or whther in fact you have a trading plan.

I really think you need to reconsider whether trading options at this stage is advisable - on the basis of what I have read - your probability of success at this stage is zero.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

 

[DTM]

And don't get too greedy as BHP isn't in a trending situation right now. It has bottomed out at the moment but I don't think you're going to get much more profit at the moment.

Oops... Sorry... Wrong again. BHP up 40 cents today.

Now you know not to listen to me in the future.

 

[Investor]

Oops... Sorry... Wrong again. BHP up 40 cents today.

Now you know not to listen to me in the future.

OK. I won't listen to you anymore.

 

[bundy]

Actually, this is the worst possible result for you.

OK, you lucked it this time, but it doesn't resolve the basic problems that you traded against the trend, have no trading plan, do not understand your exposure and your contract sizes cannot in the long run sustain profitable trading activities.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

 

[DTM]

Actually, this is the worst possible result for you.

OK, you lucked it this time, but it doesn't resolve the basic problems that you traded against the trend, have no trading plan, do not understand your exposure and your contract sizes cannot in the long run sustain profitable trading activities.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

Good point Bundy. I learnt the hard way how to deal with greed. :swear:

I've had to change my way of thinking so I don't make the same mistake again. If you don't learn how to read the market without being affected by your recent success, it may be your undoing.

 

[wayneL]

and your contract sizes cannot in the long run sustain profitable trading activities.

Bundy,

Not withstanding your other comments (though brutally worded, are largely correct), the one above has me perplexed.

The position size Jeffers has put on is ~ 600-700 deltas. Which, depending on his capital, is perfectly reasonable...or, would be perfectly reasonable in the US options market.

I'm guessing Oz transaction costs/spread/slippage must amount to an exhorbitant amout for you to say that.

Also, something about the delivery of your post is vaguely familiar....hmmmmm

 

[bundy]

It may have be brutally honest - but it still took two goes to get the message through to Jeffers.

The best lesson I ever learnt was to make a loss on my first options contract - it taught me immediately that I was not a **** hot options trader.

My trading buddy lucked a few in at the beginning - thought he had it pegged - and eventually learnt that breaking the rules can only have one ultimate consequence and he left the market after dropping over $70,000 in 12 months.

It's that simple - so I can't see the point in pussy-footing around and pandering to wannabe traders and giving them encouragement when they have lucked it in on a trade - I don't consider that doing them a favor.

As to contract size - all I meant was that if you are doing a $540 deal as in case - take out say $50 commission at each end ($100+ if you are using a full service broker) - a rise in the option price of say 30% is going to give you a return of $62 or 11.5% (you will actually lose if you are using a full service broker - need a option price increase of over 35% to break even).

Contrast this to say taking a position size of $3000 - the commission doesn't change and a 30% increase in the option price (after commission) is going to return $800 or 26% - and over 20% with a full service broker.

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

 

[wayneL]

Hey Bundy,

I totally agree with you being honest, but if we add in too much "brutality" to it, they will be scared to ask questions. Thats all I'm saying.

Regarding costs, this one of the reasons i trade in the US...it's very cheap to do business, in the case of the positionm in question, $20 in and out. ($1 per contract....but US contracts are 100 shares )

Cheers

 

[bundy]

You do it your way and I'll do it my way.

Anyway, what's with the "we" - I didn't see you offering any comments or help - just bagging me for being frank and honest in my reply.

I am not interested in getting into discussions over trivia like this in forums.

I offered some constructive comments - accept them or ignore them - but I have better things to do than debate my style with people.


---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

 

[RichKid]

Anyway, what's with the "we" - I didn't see you offering any comments or help - just bagging me for being frank and honest in my reply.

I am not interested in getting into discussions over trivia like this in forums.

I offered some constructive comments - accept them or ignore them - but I have better things to do than debate my style with people.
--
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.

Hi Bundy, welcome to the forums! We're pretty much a big lot of beginners here, Wayne and you are some of the few who actually know about the more important money mgmt topics, beginners like myself are sometimes a bit shocked by it all (how crucial it can be) so we may just clam up in fright, I think that's where Wayne is coming from but I may be wrong.

Basically we may find direct comments from experienced traders like you a bit harsh when all you're trying to do is help out, I think it's clear now that you only intended to give a helping hand, we'll just have to get used to your style, as long as it doesn't get personal it's fine with me so keep posting.
And just for the record Wayne does help out a lot with keeping us beginners (and the more experienced) informed of some common pitfalls, he did agree with most of your sentiments so I suppose he has helped out in that way too.

All the best,
RichKid
moderator

 

[wayneL]

Thanks RK,

Bundy,

You seem a bit agreessive & touchy.

Ironic really isn't it? You are keen to tell Jeffers his mistakes, but cannot accept some gently worded suggestions from someone else.

You must have poor self esteem if you thought I was "bagging" you.

If you would like to take this further, lets do it via PM to save polluting this forum with arguments.

Cheers

 

[DTM]

Regarding costs, this one of the reasons i trade in the US...it's very cheap to do business, in the case of the positionm in question, $20 in and out. ($1 per contract....but US contracts are 100 shares )

Cheers

Hi Wayne

I find that making money with options harder in the US because prices always seem more expensive. I know that in theory, they should end up the same but I find the Australian prices cheaper and when it moves, the payout is better. To get the same reward for a price movement of $1 in Australia would require a $10 move in the US. Although you do have the range and liquidity in the US which can't be matched here.


Anyway, just my view of it.

 

[wayneL]

Hi Wayne

I find that making money with options harder in the US because prices always seem more expensive. I know that in theory, they should end up the same but I find the Australian prices cheaper and when it moves, the payout is better. To get the same reward for a price movement of $1 in Australia would require a $10 move in the US. Although you do have the range and liquidity in the US which can't be matched here.


Anyway, just my view of it.

Hey DT

My experiences don't really echo yours and without seeing specific examples can't really comment. But all I can say BSOPM is BSOPM (black-scholes option pricing model) and theoretically, all things being equal, there should be no difference.

Perhaps when you tried the US there was High IV priced in for some reason that was not backed up by statistical volatility.

Also I notice that most people judge their returns on bought options as a % option premium paid.

I think this a is a mistake. I look at both risk and reward as a % of my overall capital, so, the actual option premium is irrelavant. Risk is measured via the greeks and volatility.

There is an advantage with Aussie options when trading low share value shares with cheap premiums....that is in the tick size....also greater choice of strikes

US options have a minimum tick of 5c which if buying say a 30c option really sucks. Strikes are at $2.50 intervals when the underlying is < $30, which can present difficulties also.

With what you are doing I can see why you would want to stick to OZ.

Cheers

 

[bundy]

Thanks RK,

Bundy,

You seem a bit agreessive & touchy.

Ironic really isn't it? You are keen to tell Jeffers his mistakes, but cannot accept some gently worded suggestions from someone else.

You must have poor self esteem if you thought I was "bagging" you.

If you would like to take this further, lets do it via PM to save polluting this forum with arguments.

Cheers

You couldn't let it rest - could you!

You had to make one more gratuitous comment.

And not only that - you made it personal - after the moderator had mentioned that comments should not be personal.

I'm not interested in communicating with you!

---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.

 

[Joe Blow]

Okay guys that's enough. It's gotten far too heated (unnecessarily so) and like Wayne suggested if there's going to be profanity and personal insults, please do this via private messages.

Or better yet, add each other to your ignore lists.

Thanks!

 

[bundy]

Bloody hell - another forum that thinks censorship solves all problems.

When will you guys ever learn.

if you want another nice little lame feel-good forum where people can play safely in the sandpit - be my guest.

If you want an honest and informative and hard-hitting forum - well, you gotta learn to let issues get sorted out.

The problem here arose because I was reminded to not make it personal - but you allowed a personal attack on me - what am I supposed to do?

If you're going to moderate -moderate and be even-handed about it!

Frankly - I've seen enough of this forum to do me for a while - you can go back and play wannabe traders as far as I am concerned.


---
Bundy

Good judgment is gained through experience.
Experience is gained through poor judgment.