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Option Q&A

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

Posted by Pete Stolcers on July 18

Option Trading Question

Why don't you talk much about the Greeks?

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

Posted by Pete Stolcers on July 3

Option Trading Question

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 on CROX because my confidence is pretty high that after two more earnings reports the stock will be trading much higher than $50. The stock recently traded down to $40 from $47 and I was able to buy out-of-the-money calls quite cheaply. My question is, "Can you profit from a stock while it is still out-of-the-money if it is trading higher than where you bought?" In other words lets say I bought call options on CROX when it was trading at $42. If in November the stock is trading at 49 (still out of the money but higher than where I bought it) will I profit if I trade out of my options position prior to expiration? Is the call option only profitable once you cross the strike price?

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

Posted by Pete Stolcers on June 25

Option Trading Question

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. Humbly.. I am seeking your experience and wisdom on a "what if" position that is contrarian and extremely bearish especially for the fall 2007 through early 2008. I believe we are headed for a HARD fall (12-20%) sometime in Octctober 2007 I would like to invest concisely with this viewpoint. How would you construct option trades over the next few weeks/months if you were certain of a major downturn this October?

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

Posted by Pete Stolcers on June 4

Option Trading Question

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. The spread will always be worth $10 (the difference in the strike prices) and if the stock goes below $17.50, I will make money because I can buy the spread back for less than $10. Is the risk associated with assignment or am I missing something.?

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

Posted by Pete Stolcers on March 27

Option Trading Question

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 Makers. For example, if a given option is trading at $2 - $2.20 and is at the money (with a 50% delta) I would put out a $2.05 bid. If the stock drops by 30 cents, suddenly my 2.05 bid would become the offer. My question is this, is there a firm out there that can dynamically move my bid or offer based on the movement in the stock. I have been doing this manually, and it is a ton of work, it would make me much more efficient if I could find a way to automate this. I do hear of some funds becoming remote Market Makers, not sure how feasible this option is any feedback is appreciated

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

Posted by Pete Stolcers on March 13

Option Trading Question

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 the share price for the last 2 years on a weekly basis, when the volatility is calculated, it takes the standard deviation of the 104 data points times the square root of ? Is it 52 weeks (representing the weekly perspective) or is it 104 weeks representing the observation points?

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Where Can I Find Stock Option Charts For Technical Analysis?

Posted by Pete Stolcers on March 9

Option Trading Question

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 cannot seem to find has been charts of option prices. Is there a site you can direct me to that provides option price charts?

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

Posted by Pete Stolcers on January 19

Option Trading Question

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 like graphicaly when they are combined?

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

Posted by Pete Stolcers on January 6

Option Trading Question

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 .5% everyday. Buy, hold for 1 - 7 hours, sell and bank the .5%. Compounding everyday at .5% would be very profitable and I could retire in only a few years. Here is my thinking: stocks go up, down or sometimes do nothing. So all I need is to know is which stocks will move today, by at least .5%, and in which direction. It is true that most stocks move everyday! The expected return .5% is normal within most stocks daily range. The problem I have is pulling all the information together to say that there is a 95% chance that XYZ will drop today. The 0.5% is net after trading cost $10 + $1.50 per contract and the spread.

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What’s Your Opinion Of This Option Trade?

Posted by Pete Stolcers on December 30

Option Trading Question

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 a good bounce. I expect the stock to go down a bit further, but I'm hoping that it will bounce off the bottom, and I can exit the options. What's your opinion on a bounce in Newmont Mining in January?

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

Posted by Pete Stolcers on December 22

Option Trading Question

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 at the $25 call strike price. If I buy the call, does that mean that I am buying the right to purchase 200 shares of NWS at $25, and the opposite if I sell them? If so, the options seem incredibly expensive, and might be a good place to write calls. Any help would be appreciated.

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Option Trading Idea - Expiration Strangle

Posted by Pete Stolcers on October 14

Option Trading Question

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 explosive move need to be present. Earnings alone won't do it, especially if they are "in line". There has to be a surprise component. The fact that we are close to expiration helps. We are not worried about time premium decay, this trade will work overnight or it won't. While we are paying high implied volatilities (IVs) your dollar cost is not as great because there are only a few days left before expiration.

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Does Your Option Trading Use Straddles or Strangles?

Posted by Pete Stolcers on October 14

Option Trading Question

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.

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How I Trade Options - A Seasonal Example!

Posted by Pete Stolcers on September 20

Option Trading Question

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 option to choose?

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Descending Triangle Formation - When Should I Enter?

Posted by Pete Stolcers on September 14

Option Trading Question

This question was posted in September 2006, but the lesson still applies. Koonz asked, "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 at $82 on September 8th with higher than average volume. I wasn't sure when exactly to enter. Should I enter right away when market opens at 9:30 am EST or after 10:00 am EST because the first half hour is for amateurs? What signals do you look for when timing the exact entry for this type of trade?

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