Option Trading Answer

These are my responses to questions about option strategies, option spreads, implied volatility, iron condors, option pricing, stop orders, options trading systems, buying put and call options an many other topics related to option trading. If you can't find what you're looking for conduct a search.

What Determines An Option Bid/Ask Spread?

Today Rick S. asks, "Why are some option bid/ask spreads a nickel wide and others are fifty cents wide?"

Option Credit Spreads - Where Should I Place The Stop Loss?

I've lost 25 % of my account becasue I did not set a proper stop loss order during the big market decline last week. I'm confused on how to set…

Front Month or Back Month Options?

Today Dan W. asks, "Your last couple of recommendations have been for near month put options with very little time left. Why not use an option with 30 or 60…

How Does Assignment Work?

Robert states, "My question regards the assignment of options. I'm not exactly sure how the dynamics work and how to determine if I'm in danger of being assigned. Suppose I…

Do You Ever Pivot From Long Put Options To Long Call Options?

Do you ever consider moving a stock from a bullish watchlist to a bearish watchlist without waiting for your scan to do it for you?

Option Trading and Risk Management - What Approach Do You Use?

"I noticed you haven't written much about Money Management as a critical element to trading effectiveness. Do you personally apply a specific Money Management philosophy and if so, can you…

“I’m Reading A Course By Bernie Schaeffer. Is it a Waste of Time?”

I am reading Bernie Schaeffers course on 10 Days to Succesful Options Trading. Am on the right path? Is he reputable, or am I wasting my time?

In The Money Or Out Of The Money?

Susan R. asks, “I struggle with which option to buy once I find a trade. The In The Money (ITM) options are expensive but they move well. They are risky…

How Do I Handle A Losing Out Of The Money Option Trade That Has Lots Of Time?

Please indulge a beginner. I have limited myself to buying calls and puts until I got more familiar with option strategies. As February expiration approached I found myself hopelessly out-of-the-money…

Covered Calls - Should I Roll Up and Out?

My question is about the appropriate exit strategy at expiration of a covered call I've written. When is it advisable to let an option get exercised; to roll straight out…

What is The Best Approach To Option Trading If You Only Have $5000?

Money management with low balances. I read a lot about managing accounts by limiting the percentage of your balance you risk on any individual trade. However, if a person wants…

“Rolling” An Option Position

Rick S. asks, "I have seen you post comments that refer to "rolling" positions the week of expiration. What exactly is that?

How Can I Exit This Option Trade Without Getting Whipsawed?

I'm playing a stock that I believe will increase quickly so I bought simple calls on it. The problem is that I want to protect my profits without being whipsawed…

If The Stock Option Liquidity Is Poor, Can I Get Screwed Out Of Profits?

Let's say I've picked a very liquid stock (1 million shares average daily volume) with little option liquidity. I've bought 10 contracts for $3.00 and there isn't any buying or…

Surrogate Market Positions - How and Why?

Over a year ago, I featured this question in my option trading blog. The market conditions have changed, but the concept has not. Lee T. asks, “Can you recommend a…

Which Option Strike Price Should I Trade?

Can you blog about the strategies that you use to pick the option strike price and expiration month once you have identified a possible stock? Also are there any tools…

Why Are VIX Options At A Discount?

I have noticed that calls on the VIX trade at a discount. Why is that? Is there an arbitrage opportunity? What am I missing?

Can You Help Me Exploit The Delta Of An Option?

Where can I find real time delta calculations for various options? CBOE has "freeware" that computes Greeks, but even with this utility one has you input multiple variables. This makes…

How Do I Get A Good “Deal” On A Stock Option?

I have heard people say they got a 'good deal' on an option price or that an option is overpriced.... what constitutes what is a 'good deal' or what is…

Which Option Trading Arbitrage Strategy Is The Best?

Among the strategies discussed on your site I was looking for arbitrage strategies (no chance of loss), such as this: you buy a $50 put for $1.00 and you sell…

I’m Faced With An Ill Liquid Market? How Can I Keep The Market Maker Honest?

I am trying to establish a position in a very ill liquid option. It's so ill liquid that I am the only one and it. Every time I place an…

I Need to Know When I’m Assigned. Why Is Option Assignment Notification So Screwed Up?

I don't know if I am even directing this question properly, but I am trying to overcome the bs replies from various brokers and the option trade groups. How is…

Why Aren’t Index Options Listed On This Popular ETF?

The QID is a huge product (ETF of double short NASDAQ). I would think it would have a large speculative appeal as a listed index option. Is there some rule…

What Do You Think Of A Covered Call Stock Option Trading Strategy That Uses LEAPS?

What do you think of an option trading strategy that buys stocks with good fundamentals and then sells LEAPS against them? What would be the downside risk on the trade?

Doesn’t Stock Option Trading Require The Use Of “Greeks”?

Why don't you talk much about the Greeks?

Can I Make Stock Option Trading Profits If The Stock Moves Just A Little?

I'm a novice options trader and I just started by buying calls. I have a question that I suspect has an obvious answer. I bought some out-of-the-money Dec 50 calls…

The Market Is Going To Crash. How Can I Make Money Trading Options?

I have read your 6/22/07 market forecast of a bullish 6 months ahead. I really enjoy your authenticity and candor on everything I have encountered on your site thus far.…

How Do Market Makers Pin A Stock Right At The Strike Price During Option Expiration?

Can you explain how Market Makers manage to keep a stock flat lined right at a strike price on options expiration day?

A Can’t Miss In-The-Money Call Credit Spread!?

If a stock is trading at $25 and I sell the December 7.5 calls and buy the December 17.50 calls for a net credit of $10, I can't lose money.…

How Can I Get An Entry Level Position Where I Can Learn How To Trade?

I was wondering if you could give me some advice on how to get an entry-level position trading options. I would like to learn the job from a professional. I…

How Can I Use Options To Capitalize On A Pre-Open Move?

Yesterday NTAP dropped 21% during premarket trading due to an earnings "miss". I wanted to buy a put option figuring it would increase 450% in value as the stock dropped.…

Is There An Option Broker That Will Adjust My Option Bid Based On the Stock?

I actively trade options and as you know, it CAN be very manual work. I am wondering if you know any good execution houses who essentially act as remote Market…

Which Option Pricing Model Should I Use To Calculate Implied Volatility?

I am getting so many different opinions on how volatility is calculated with the Black-Scholes model. If I am looking at an expected term of 2 years and I load…

How Should I Approach High Implied Volatility Stock Options?

Every month we can always find options with very high implied volatility, especially from pharmacuetical companies that are waiting for FDA approval. Is there any proven way to profit from…

Where Can I Find Stock Option Charts For Technical Analysis?

I am relatively new to options and have been searching all over the web for resources to help me learn as much as I can. One of the things I…

Option Credit Spreads Gone Bad - Buy In The Short?

When we get stopped out on a put spread why do we close the whole position? I have noticed that if we covered the short leg and keep the long…

What Is An Option Box Spread and How Does It Work?

I am reading up on the box spread option, a combination of a bear put spread and a bull call spread. Can you show me what this strategy will look…

Can An Option Trader With A $100k Account Consistently Make $500 A Day?

My question is simple, but best explained by telling what I want to do. I want to invest 100% of my money into stocks and make a net profit of…

What’s Your Opinion Of This Option Trade?

I bought some Newmont mining options, January 50's, and I'd like your opinion on whether there might be a bounce in this stock. I'm looking to exit the options on…

The Options On NWS Are Unusually Priced. Is This A Covered Call Opportunity?

I am having trouble understanding exactly how non-standard options trade. For example, there is a non-standard option trading on NWS for January VJCAE that is for 200 shares of NWS…

Option Trading Idea - Expiration Strangle

I'm not a big fan of strangles so keep that in mind as you read my option trading blog. As I mentioned in my previous post, the elements of an…

Does Your Option Trading Use Straddles or Strangles?

In today's option trading blog I will answer a question submitted by Robert F., “Do you trade straddles? If so, what is your setup, entry and exit.

How I Trade Options - A Seasonal Example!

Today John M. asks, “I am looking to play a seasonal trade on UPS. It usually runs up from mid-September to mid-December. Given that time frame what is the best…

Descending Triangle Formation - When Should I Enter?

Today Koonz asks, "I was looking at to buy a put on FLR after noting it had formed a Descending Triangle. It broke down and closed below the baseline at…

What Does It Take To Be A Full-time Trader?

Today, Don W. asks, “I’ve been trading for a few years with some success. Can you make a living doing this full-time and how much capital does it take?”

Where Should I Turn For Option Education?

Today Kanu B. states, "I am interested in options and I have attended some free seminars given by http://www.TradeToBeFree.com. I paid for a 3 day seminar and learned nothing!…

Why Use The SPY As A Market Gauge?

Today I'll address a question I found in the comments. Will Maddox asks, "Why do you use the SPY as a measure of what the market is doing?"

How Do I Determine A Spread Price?

Today Jackie V. states, “I traded a bull call spread of the Russell 2000. I purchased the 710 Dec Call and sold the 720 Dec call. It is trading @…

The Problem With Option Limit Orders.

Today Don G. states, “I don’t like to place market orders because I always seem to pay more than I should. However, when I place a limit order I rarely…

How To Get In When You Can’t Be Around.

Today Tim S. asks, “Often, I see a good trade but I can’t be around to watch it. When I pay up, it goes against me, when I put a…

Naked Put Writing And The “Big Hurt”.

Today Tom T. states, “I have been selling puts as a means to generate income for about 18 months. Most months, I have made money, but in the months I…

How Much Should I Expect To Make A Year?

Today Rich asks such a great question that I will post it all. “This is more trading goal oriented. I would like to setup goals to measure progress. Is this…

Index Trading vs Individual Stocks

Today Lloyd R. asks "I understand why someone would want to be long options, but why not use indexes for credit spreads? Stocks are so unpredictable and a news event…

Will Penny-size Option Quotes Help Traders?

Today Joe M. asked, “What are your thoughts on exchanges quoting options in pennies instead of nickels and dimes? It seems like it should narrow the spread.”

Exercise, Assignment and Spreads

Today Rick W. asks, “I don’t understand what I’m supposed to do when I have a spread and I get assigned on one leg of the trade.”

Implied Volatility

Today Paul sends the following, “I really want to understand option volatility. I have looked at it from every side and have even subscribed to sites that compute volatility, but…

Hedge Or Bail?

In response to yesterday’s posting Helena Y. asks, “Many experts advise cutting losses at 7-8% below the purchase price of a stock - no matter what. Is it a good…

Hedging Option Positions

Today Sam P. asks, “How can I keep from getting headfaked out of good options positions when the market moves against me?”

Profit Management

Len H. - I have heard many people say, “When you reach a certain profit point, you should take some profit and leave some ride.” I believe that if you…

Is Covered Call Writing Risky?

Ravi D. submitted the following,”I have found covered call writing on bio techs to be risky. How do you screen for candidates?”

Protective Stops

Today Bobby Z. asked, “How do you determine where to place your stops?”

Debit Spread or Credit Spread?

On 5/24/06 Thomas F. asked, “How do you determine if you will do a credit spread or debit spread?”