Options Questions

[vanzandt]

Just call them, and ask for the CBOT. TALK to a real human being, rather than try to find your curriculum answers on the Internet. +1 312 930 1000

Ask for ext. 237

 

[Overnight]

Ask for ext. 237

I'd like that post, but it is kind of an inside joke and a bit distracting. He has a valid concern. He should really call that number and ask people...REAL people. Why is everyone so afraid to call the sources that could give them the best and most accurate information. Oi.

 

[tommcginnis]

Hi Tom
... I answered about 55 questions on my own and I am stuck on a few stragglers.

Thanks for the input on #3.

Eww Gawd... Shame on me *again*.....
I really should be trading, but I looked again at Question 3, and it's a perfectly good question -- I had misread it initially to give the choice between the sale of two different puts ($2,$3??) -- and such a difference either comes from distance-from-market (the 'strike'), or from distance-in-time (the expiration). But there was no dual sell-puts answer.

And not to answer *directly*, but selling puts is a fine, fine method by which to enter long market positions that you had intended to enter regardless.

Just sayin'......

NOW I'm going back to work.....

 

[vanzandt]

I'd like that post, but it is kind of an inside joke and a bit distracting. He has a valid concern. He should really call that number and ask people...REAL people. Why is everyone so afraid to call the sources that could give them the best and most accurate information. Oi.

Yeah.... 237 is off limits to the mentally sane.

 

[TWJ]

I am a bit confused on an assignment for a Professional Development class I am taking...

1) You want to set up a covered call position on 1,000 shares of XYZ stock. Your goal is to collect the greatest premium, and you don't mind being assigned. Which of these would you probably do if XYZ were trading for $40 per share?

A)Buy 10 calls on XYZ stock with a strike price of $25
B) Sell 10 calls on XYZ stock with a strike price of $30
C) Sell 10 calls on XYZ stock with a strike price of $45
D) Sell 10 puts on XYZ stock with a strike price of $50

2.) You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

A) ABC stock stays at $40, and the puts expire worthless
B) ABC stock stays at $40, and you buy back the puts for a profit
C) ABC's price rises to $50, and you're assigned to buy the stock at $40 per share
D) ABC stock falls to $20, and you exercise the puts to sell the stock at $40 per share

3) You want to buy 100 shares of XYZ stock, and you don't want to pay more than $20 per share for it. Which option strategy would be the least expensive?

A) Buy one XYZ 20 call for $2
B) Sell one XYZ 20 call for $4
C) Buy one XYZ 20 put for $1
D) Sell one XYZ 20 put for $3

1) C, you get the call premium and $5 if you are assigned
2) A, keeps the premium
3) C, all you pay to keep price below $20 is $1= cheapest

 

[Lee-]

Well, teaching financial literacy to our youth certainly seems like a noble cause who's time is long overdue. Good luck.

It is indeed a noble cause. You could probably get KCG, Citadel, or similar firm that pays for order flow to provide funding for such education in your school. After all, they need more blood to feast upon educated market participants.

 

[JackRab]

C,C,D.. but the #2 C isn't going to happen... would be nice... but not likely.

That said though... When I was trading German Gov Bond options, some guy forgot to manually exercise (no auto ex. possible) his longs in time. We made about 300k on it. I reckon he lost about 25+ mln...

So I guess, yeah.. people can also mark the wrong ones and exercise the wrong options...

 

[xandman]

Thanks! Perhaps if you know this one you can tell me if I am on the right track.

How could you best use a long call to lock in a desirable stock purchase price for 2 months?
A) Buy any long call that might profit enough for you to afford your stock in 2 months
B) Buy a cheap, deeply out-of-the-money call that expires in two months on the stock you wish to buy
C) Buy a long call that expires in 2 months with a strike price at which you're willing to purchase the stock
D) Buy a long call that expires in 2 months with a strike price higher than the stock price you want to pay

I am leaning towards C and eliminated B but am not confident haha.

Thanks

A terribly worded question that leaves you to assume what "a desirable stock purchase price" is.

A) No. It might be easier to just wait for a paycheck.
B) No. Highly speculative and will probably expire wortheless AND leave you with a more expensive stock to buy.
C) Maybe. Assumes you are a reasonable person that will accept market price at anytime. Why are we doing this hedging exercise then?
D) No. Again could expire worthless and still produce a more expensive stock.

So, C. But the should have worded it: "to lock in the current market price". That is straight out of exchange marketing vocabulary.

Obviously, what is desirable is the cheapest price possible for the stock but the equivalent low strike call would not necessitate the use of options. The easy money really is in trading... education!

 

[systematictrader]

That's very surprising. Your course must be sponsored by the CBOE...jk. Options education for high school is an esoteric rabbit hole.

Seriously, the general public should be educated in defined contribution plans. Specifically, they should be aware of the historic switch between the defined benefit pensions of our grandparents and the self-managed funds we have today. A complicated management responsibility which demands you to be self-aware about where you are in your stage of life (a high schooler's biggest dilemma).

There is a glaring knowledge deficiency and I fear for the newer generations that are not aware how different their world has become. The baby boomers did "their own thing" but they always had a parachute.

ERISA 1972?

 

[systematictrader]

Ask for ext. 237

hahahaha