Options Mentoring

[cutz]

Hi gary,

The list of stocks you can use as collateral is here http://www.asx.com.au/data/acceptable_stocks.pdf OSH is on the list and it gets a haircut of 30% but I don’t think you can lodge it as collateral as it may be reserved for your covered call, so unless you have other stocks available you will have to submit cash. Just a word of caution it always pays to have plenty of margin in the tank on short postions as running on the limit may have its dangers but i will leave that to the more experienced for further comment if req.

Cutz.

 

[jackson8]

have had first experience with margins today
have only been writing covered calls with the stock being held as colateral
so have not had to worry about margins

but just recently upgraded option account to level 4 which now allows sale of naked puts and calls ( calls im not interested in )

had a sms today saying had been rejected settlement of a margin on my sold call as no funds in my cash account and charged $54 for the trouble

seems that since the upgrade of options level the stock wont cover any large rises and margins may be called , has to do with the ability to now go naked .

have found it a bit confuseing so will just have to keep account topped up like you say cutz

what i find hard to beleive is that you only find out about margin call at beginning of each day yet there is no provision for me to be able to have instantaneous transfer of funds into there account .......think they would give you 24 hrs to transfer funds as most banks only transfer overnight

suppose its all a learning curve

thanks for your help guys

 

[cutz]

Hi Jackson8,

With a level 4 accounts you need to ring up comsec on their options line and request to lodge securities as collateral from your nominated HIN overwise they will start pulling cash from your bank account, I think this happens automatically on a covered call only account but not on a level 4 account, best ring them up to elaborate.

Your position statement will show your current margin level and what’s still available; I start to sweat when I approach 50%, any higher I begin closing out positions.

 

[KFC soup]

can you do spread on comsec?

 

[jackson8]

not that i am aware of

 

[jackson8]

just a comment concerning trading over internet versus phone

wanting to ring my options desk just to check on a couple of trades i had made over the internet

put on hold for all of twenty minutes so would hate to think the financial implications of wanting to close out a position which was going against you

 

[cutz]

Hi Jackson8

Are you using webiress with comsec, without it on days like today it would be like driving blind.

 

[jackson8]

Hi Jackson8

Are you using webiress with comsec, without it on days like today it would be like driving blind.

no not at this stage cutz .........am only writing calls over shares i own but am thinking of selling long dated otm puts.

do i need to be aware of implictions with puts stragety such as dividends or the like

thanks gary

 

[cutz]

Hi again,

Refer to Sails's posts #183 and #186 for div. implications, also can i suggest you sign up for webiress, at least for the free trial period, then if you are still happy to use it's free anyway if you do a small amount of trades per month.
BTW this doesn't mean i am happy with comsec, i feel i'm getting stitched up with brokerage costs but i am not changing brokers till this market mayhem has sorted itself out.
Also Options As A Strategic Investment is essential reading if you're looking at getting fired up in this game.

 

[cutz]

gary,

Be careful with covered calls if you have no intention of selling the underlying,
Manage the position to avoid assignment esp. with comsecs charges.
I learnt quickly the hard way with unwanted CGT implications and the trouble of buying back those stocks.

 

[mazzatelli1000]

Also Options As A Strategic Investment is essential reading if you're looking at getting fired up in this game.

Brings back memories ---gosh that was a dry read (but essential)

 

[jackson8]

Hi again,

Refer to Sails's posts #183 and #186 for div. implications, also can i suggest you sign up for webiress, at least for the free trial period, then if you are still happy to use it's free anyway if you do a small amount of trades per month.
BTW this doesn't mean i am happy with comsec, i feel i'm getting stitched up with brokerage costs but i am not changing brokers till this market mayhem has sorted itself out.
Also Options As A Strategic Investment is essential reading if you're looking at getting fired up in this game.

i appreciate your help ..........

agree with your comments about comsec and i know there are cheaper brokers out there but feel secure useing them at this stage and the amount of paperwork to sign up elsewhere can be a bit daunting.

will check out posts mentioned above

thanks gary

 

[sails]

no not at this stage cutz .........am only writing calls over shares i own but am thinking of selling long dated otm puts.

do i need to be aware of implictions with puts stragety such as dividends or the like

thanks gary

I think I only mentioned short calls and dividends in earlier posts. Short puts do not carry the same dividend liability. It is most unlikely that a short put would be exercised the day before x-div as most will want to retain ownership of their shares to receive the dividend and would therefore wait until at least the day after before exercising their long puts. In fact, it it happened, you should be entitled the dividend as a bonus.

If your short puts are ITM in the days following Xdiv - there is a much higher level of being assigned as long stock holders have received their entitlement to the dividend and if there isn't much time value left in their ITM long puts (your short puts) - they are quite likely to exercise.

Short puts do have the advantage of being increased in price due to the impending dividend factored into them - which then dissipates after xdiv day.

Also, interest rates affect longer term options. A simple example is when buying a longer term call option, interest is pre-paid and is why calls are so much more expensive than puts as they have some reduction due to the interest rate component of their pricing. It is worthwhile, IMO, to fully understand these other forces which are at work in option pricing.

Anyway, all this is my and only of the top of my head! Suggest you read some good option text books to confirm my ideas and make sure you understand how dividends are factored into option pricing.

 

[mazzatelli1000]

i appreciate your help ..........

agree with your comments about comsec and i know there are cheaper brokers out there but feel secure useing them at this stage and the amount of paperwork to sign up elsewhere can be a bit daunting.

will check out posts mentioned above

thanks gary

Not only are there cheaper options - but more efficient too, particularly concerning spreads etc. I know I have banged on about this before, but I cannot understand why people stick with Commsec. If one is treating this as a business, it would be extremely poor practice.

You can still keep Commsec for data purposes, but for execution defintely look somewhere else.

 

[cutz]

Hi all,

I want to run down a trade I just put through for comment,

I now normally set up put credit/call credit spreads depending on the market conditions at the time, with stock options I prefer to deal with underlying stocks I own as I feel like I know them well, I don’t want to assigned therefore that’s why I add wings to the short call, I know this may sound weird.

If the stock moves up through my lower strike I normally carry out a diagonal roll into the next month, if the stocks explodes through the lower strike the roll could end up being 2 months fwd which I don’t like to do and luckily this is a lot rarer, therefore I’m rolling so I don’t have to take a loss on the call spread and I don’t want to be assigned.

Today I put on a backspread i.e. I sold 4 calls and bought 8 calls with the strikes further apart, the calls I purchased cost the same as if I would have put on just a simple call credit spread (relatively), now I know this position is long Vega and IV on this particular stock is likely to decrease but the intent of this trade is to cover myself if the stocks keeps running up.

So the end result is I’ve obtained some good premium, (but it could have been much better because I stuffed this trade up), I feel this stock may continue running up but I’m not 100% on this.

If the stocks keeps running up follow up action may not be as painful.

Feel free to give me opinions on this, and don’t hold back on flack as i can take it.

 

[wayneL]

Hi all,

I want to run down a trade I just put through for comment,

I now normally set up put credit/call credit spreads depending on the market conditions at the time, with stock options I prefer to deal with underlying stocks I own as I feel like I know them well, I don’t want to assigned therefore that’s why I add wings to the short call, I know this may sound weird.

If the stock moves up through my lower strike I normally carry out a diagonal roll into the next month, if the stocks explodes through the lower strike the roll could end up being 2 months fwd which I don’t like to do and luckily this is a lot rarer, therefore I’m rolling so I don’t have to take a loss on the call spread and I don’t want to be assigned.

Today I put on a backspread i.e. I sold 4 calls and bought 8 calls with the strikes further apart, the calls I purchased cost the same as if I would have put on just a simple call credit spread (relatively), now I know this position is long Vega and IV on this particular stock is likely to decrease but the intent of this trade is to cover myself if the stocks keeps running up.

So the end result is I’ve obtained some good premium, (but it could have been much better because I stuffed this trade up), I feel this stock may continue running up but I’m not 100% on this.

If the stocks keeps running up follow up action may not be as painful.

Feel free to give me opinions on this, and don’t hold back on flack as i can take it.

It's a bit hard to comment without knowing more specifics cutz:

1. Underlying position
2. Price of the underlying
3. Striking prices and expiries of the options
4. Net Premium (debit or credit)

Cheers

 

[chops_a_must]

It's a bit hard to comment without knowing more specifics cutz:

1. Underlying position
2. Price of the underlying
3. Striking prices and expiries of the options
4. Net Premium (debit or credit)

Cheers

Talking options in your sleep I see.

What time is it over there? Go to bed!

 

[wayneL]

Talking options in your sleep I see.

What time is it over there? Go to bed!

I just got back from my local... sleeping in tommorrow.

 

[Grinder]

Its a descent hedge you got depending on your greeks, just thinking if ya stock keeps running up and IV continues to fall your backspread will start looking pretty ordinary. However, if your stock shoots the moon sometime soon your ratio wings will propell you some good coin.

Keep an eye on IV fluctuations & if you don't see a big move within a couple of weeks look to roll up & out before your long calls get eaten up in value.

 

[sails]

Options are all about trade-offs and shifting risk. Obviously in your new trade, there is some added protection with the second call, however, now there is increased risk due to the larger difference between strikes and with only three weeks to expiry in December, theta could be working fairly hard against your FOTM long calls.

Have you put it into Hoadley and then run the your new back spread compared to your original trade?

Perhaps you could also look at leaving one call at your normal position and then sacrificing a little of your premium to pay for one higher? Only a suggestion as I rarely do straight credit spreads. Don't like being short gamma near expiry