So I don't use stops and I think the math supports this.
- Thread starter wxytrader
- Start date
Just wondering if this ever happens much??
ITM then OTM or vise versa...
Caveats at Expiration
While the majority of options never reach their expiration dates due to traders offsetting or closing their positions before that time, some options do live on until their actual expiration times. This delay can create interesting dynamics because the last time for trading can be before the expiration time.
This time difference is not a problem when the underlying security also closes for trading at the same time. However, if the underlying security does trade beyond the close of trading for the option, both buyers and sellers might find that the exercise of their contract is automatic if they were ITM. Conversely, they may expect the automatic exercise, but after-hours trading in the underlying asset may push them OTM.
Rules covering these possibilities, especially at what time the final price of the underlying is recorded, can change. So, traders should check with both the exchange where their options trade, as well as the brokerage handling their account.
Example: SPXW Weekly Options
SPXW are weekly expiration cycle options on the S&P 500 Index listed by the CBOE. SPXW Weeklys are settled on the last trading day, typically a Friday for SPXW EOW Weeklys.
As with other afternoon-settled index options, the exercise-settlement value is calculated using the last (closing) reported sales price in the primary market of each component stock. On the last trading day, trading in expiring SPXW Weeklys closes at 3:00 p.m. Central Standard Time (CST). All non-expiring SPXW Weeklys, meanwhile, continue to trade until 3:15 p.m. CST.5
ITM then OTM or vise versa...
Caveats at Expiration
While the majority of options never reach their expiration dates due to traders offsetting or closing their positions before that time, some options do live on until their actual expiration times. This delay can create interesting dynamics because the last time for trading can be before the expiration time.
This time difference is not a problem when the underlying security also closes for trading at the same time. However, if the underlying security does trade beyond the close of trading for the option, both buyers and sellers might find that the exercise of their contract is automatic if they were ITM. Conversely, they may expect the automatic exercise, but after-hours trading in the underlying asset may push them OTM.
Rules covering these possibilities, especially at what time the final price of the underlying is recorded, can change. So, traders should check with both the exchange where their options trade, as well as the brokerage handling their account.
Example: SPXW Weekly Options
SPXW are weekly expiration cycle options on the S&P 500 Index listed by the CBOE. SPXW Weeklys are settled on the last trading day, typically a Friday for SPXW EOW Weeklys.
As with other afternoon-settled index options, the exercise-settlement value is calculated using the last (closing) reported sales price in the primary market of each component stock. On the last trading day, trading in expiring SPXW Weeklys closes at 3:00 p.m. Central Standard Time (CST). All non-expiring SPXW Weeklys, meanwhile, continue to trade until 3:15 p.m. CST.5
Soon he will be
penniless, wife-less, hopefully not life-less.
Anyway, newbies have to go through the experience of not using STOPs.
Some will become smarter.
Some will simply just perish.
Once I was day trading OMXS30 futures.
A short while after I entered the trade, damn bloody OMX Nordic Exchange had technical problems, and trading was frozen.
A few hours later, OMX Exchange opened, and I lost a few thousand dollars.
Even if we have STOP, such sickening things could happen.
GOOD LUCK to the STOPLESS OP.
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It's a spread so the stop is effectively built in at 100% of debit paid.
Is this just a single option? Call or Put? Long or short? Or is it a spread or spread-like construct?
And how do you determine the risk:reward in advance (ie. which formula do you use)?
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LOL OP said in his first sentence "defined risk spread" Most likely otm bear put spreads to get that sort of risk reward ratio. Not quite accurate the 1:3 ratio because sometimes you will get expiry occurring somewhere inbetween the spread.
You just gave an example of how stops are useless. They won't protect you while the market is closed and that's when the big moves happen.
Do you not understand defined risk? There are way more effective ways to protect your position than stops.
Have you guys been drinking the smb capital cool-aid or what? Stops are an amateur way of trading. They will not protect you from a huge drawdown...even when the market is open you aren't guarantied getting filled at your stop price anyway. Placing a stop does not equal defined risk...max loss is your defined risk.
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On July 22 in an other thread I wrote this:
No need for stops as spreads have a certain guarantee...It holds even after a possible early assignment...
Would you classify this spread trade as having a risk:reward of 1:3 ?
https://optioncreator.com/steby3k
https://optioncreator.com/steby3k
Nope max reward about 3 and max risk is 4 with expiry at 10 or lower.
Using your example above with price at 10 get long the 8 put and short the 7 put for 0.3 debit.
Max risk is 0.3 max reward is 1 (7 or lower at expiry) That gives you your 1:3 risk/reward approximately.
All figures are for illustrated purpose only.