Covered Calls and Expiration Issues

riskfreetrading · Feb 20, 2009

Data Cruncher:

I would like to say two things:

1. You are worrying about the wrong thing. You should not worry about your covered OTM call which is covered by stock, but about your stock which can fall on you.

If you get the stock taken away from it is good for you as you sold it higher.

If you have to buy an OTM option, do not you think that you should buy not a call, but use the same money to buy an OTM PUT in case your stock falls?

2. Conclusion: if you have to buy an OTM option which is "wortheless", buy the put (the closest "worthelss" one)

3. What did you finally do? You were in a hurry yesterday?

KINGOFSHORTS · Feb 20, 2009

Be the guy who sells naked OTM calls or puts(or both) for 1 penny on exp fridays

1000 contracts for 1 penny = 1000 dollar profit for being the closer

Sell it way OTM for 1 penny of course

dagnyt · Feb 20, 2009

Quote from DataCruncher:

thanks. I'm just wondering how realistic it would be for me to be filled if i put in a bid of 0.01 at like 3:45pm and the option is about to be worthless

Reasonable.

But you really don't want to wait that long. If your major concern is being able to unload your long stock position before the market closes for the week, then surely you want to give yourself the best chance to buy your calls. And that means more time.

And, isn't it worth an extra penny to save yourself from the anxiety of holding stock over the weekend?

Mark

riskfreetrading · Feb 20, 2009

Quote from KINGOFSHORTS:

Be the guy who sells naked OTM calls or puts(or both) for 1 penny on exp fridays

1000 contracts for 1 penny = 1000 dollar profit for being the closer

Sell it way OTM for 1 penny of course

Have you ever taken a look in my account? I need to double check this.

There is even better.

I call it the 1 dollars store sale. You can run a 12% return business on expiration day.

A lot of what works is not in the books.

riskfreetrading · Feb 20, 2009

Quote from DataCruncher:

thanks. I'm just wondering how realistic it would be for me to be filled if i put in a bid of 0.01 at like 3:45pm and the option is about to be worthless

Hi DataCruncher:

Your broker may not allow you to sell calls and puts short (except covered calls of course).

If you want to bypass all his barriers, you can do it. He will not know because if he does he will either remove the restriction on you, or he will be dumb to figure it out.

There is a hidden world to options. You need to look beneat the surface, and it is written no where except in your mind.

PM me, and I may decide to spill a bit more beans.

dagnyt · Feb 20, 2009

Quote from riskfreetrading:

Your broker... will not know...

But the broker's computer will know. That's more than enough.

In the unlikely event that you were able to sneak the sale of 5,000 options past the computer in the first place, when you can't immediately meet the margin call, they'll buy you in at the market. Sell at one penny. Buy in at a nickel. Nice trade.

Mark

spindr0 · Feb 20, 2009

Quote from DataCruncher:

I do not want to have to hold the stock over the weekend, I would like to sell it in the aftermarket on Friday.

If I did have to buy back the calls before I sell the stock, I could try to buy them at say 3:50pm. But if they are about to expire worthless, what kind of liquidity will there be on the calls? Will I have to pay some outrageous ask price to buy back the calls? [/B]

If it's your intention to close the option position by the end of the day, place an order first thing in the morning to buy the call back at a desirable low price. Sometimes you'll get hit during the day as people look to salvage something for their near worthless long positions or closing out their more sophisticated positions (spreads, straddles, etc.).

FWIW, you're focused on the wrong leg. If the option is OTM, it's the stock that has the significant risk, not the call. You're looking to save pennies and nickels on the option while risking possible dimes and quarters on the stock.

Unless you have a knack for trading as well as legging in and out of positions, you should close the psoitions simultaneously with a combo order. You can offer a price that split the bids and often, you'll get a better fill.

spindr0 · Feb 20, 2009

If you have to buy an OTM option, do not you think that you should buy not a call, but use the same money to buy an OTM PUT in case your stock falls? Conclusion: if you have to buy an OTM option which is "wortheless", buy the put (the closest "worthelss" one)

Suggestions are going from bad to verse. An OTM put trading near a nickel and about to expire is going to provide a lot of protection. Uh huh.

riskfreetrading · Feb 20, 2009

Quote from dagnyt:

But the broker's computer will know. That's more than enough.

In the unlikely event that you were able to sneak the sale of 5,000 options past the computer in the first place, when you can't immediately meet the margin call, they'll buy you in at the market. Sell at one penny. Buy in at a nickel. Nice trade.

Mark

You do not know the way to do it, that is why you do not see it. It is not about fooling the computer broker or anybody.

It is just being smarter about how to do things. That is it.

dagnyt · Feb 20, 2009

Quote from riskfreetrading:

You do not know the way to do it, that is why you do not see it. It is not about fooling the computer broker or anybody.

It is just being smarter about how to do things. That is it.

You are great with the innuendos that you know something useful.

But the truth is you never tell anyone what it is because you have nothing to tell.

Mark