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Questions about Stock Options

  • #1
  • First Post: Apr 16, 2017 4:05pm Apr 16, 2017 4:05pm
Hello all.
I am looking to trade options,but have some questions:
1.How much option contracts can I buy?(e.g. 100?1000?10000?)
2.Is there any liquidity problems with options?For example:
I buy 1000(100000 shares) Call contracts of "ABC" at strike of 100 for 2 months,after 1 month price is on 110 and I tell myself- ok, thats enough.So I have two options-sell this contracts to the market or exercise them.But the question is can I sell to the market(not exercise) this huge number of contracts immediately for profit?In other words-is there chance that after I bought 1000 contracts I can't sell them back to the market immediately and the only thing I have left is to exercise them?
If anybody is familiar with Options please help.
  • #2
  • Apr 16, 2017 8:06pm Apr 16, 2017 8:06pm
Quoting WellOrgMan
Hello all. I am looking to trade options,but have some questions: 1.How much option contracts can I buy?(e.g. 100?1000?10000?) 2.Is there any liquidity problems with options?For example: I buy 1000(100000 shares) Call contracts of "ABC" at strike of 100 for 2 months,after 1 month price is on 110 and I tell myself- ok, thats enough.So I have two options-sell this contracts to the market or exercise them.But the question is can I sell to the market(not exercise) this huge number of contracts immediately for profit?In other words-is there chance that...
1-American Style options can be sold any time.
2-European Style options must be held to expiration.
3-Liquidity varies greatly from one stock to another. Some stocks have very liquid options and others are VERY thin. Large cap stocks usually have good liquidity. There are many strike prices across many months so need to review. Watch the bid/ask quantities when the market is open to see how liquid. Also, look @ the OI (open interest) and try to stick with the options with high OI.
4-See the May (monthly) options below for apple (AAPL) & microsoft (MSFT). These are just an idea of the quantities available for just one month. These are "american style" options.

***I've been trading options for more than 20 years but have never traded a "european style" option so don't know much about them.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: Options.AAPL.png Size: 71 KB
Click to Enlarge Name: Options.MSFT.png Size: 81 KB
  • #3
  • Apr 17, 2017 12:46pm Apr 17, 2017 12:46pm
Quoting srt
{quote} 1-American Style options can be sold any time. 2-European Style options must be held to expiration. 3-Liquidity varies greatly from one stock to another. Some stocks have very liquid options and others are VERY thin. Large cap stocks usually have good liquidity. There are many strike prices across many months so need to review. Watch the bid/ask quantities when the market is open to see how liquid. Also, look @ the OI (open interest) and try to stick with the options with high OI. 4-See the May (monthly) options below for apple (AAPL) &...
So...to be on the safe side I need to choose options with decent OI?
And again-how can I see how much contracts I can buy?
OI shows total number of contracts buyed and selled and I don't understand how this number can tell me how many contracts is available for me to buy...
  • #4
  • Apr 17, 2017 1:01pm Apr 17, 2017 1:01pm
Quoting WellOrgMan
{quote} So...to be on the safe side I need to choose options with decent OI? And again-how can I see how much contracts I can buy? OI shows total number of contracts buyed and selled and I don't understand how this number can tell me how many contracts is available for me to buy...
You need to see bid/ask when the markets are open.
I just took a snapshot of the quantities available @ bid/ask at the 140 call strike in AAPL.
If you add the numbers in the "bid" column that will give you total buying power if you need to sell @ 4.15.
Add numbers in "ask" quantity will give you total available to buy @ 4.20.
So you could hit the market now to sell 2,000 contracts @ 4.15 and all should get filled @ that price.
Attached Image (click to enlarge)
Click to Enlarge Name: AAPL bid.ask.png Size: 78 KB
  • #5
  • Apr 17, 2017 1:11pm Apr 17, 2017 1:11pm
Quoting srt
{quote} You need to see bid/ask when the markets are open. I just took a snapshot of the quantities available @ bid/ask at the 140 call strike in AAPL. If you add the numbers in the "bid" column that will give you total buying power if you need to sell @ 4.15. Add numbers in "ask" quantity will give you total available to buy @ 4.20. So you could hit the market now to sell 2,000 contracts @ 4.15 and all should get filled @ that price. {image}
Got it now!Thanks.
From what platform/website is those screenshots?
  • #6
  • Apr 17, 2017 1:15pm Apr 17, 2017 1:15pm
Quoting WellOrgMan
{quote} Got it now!Thanks. From what platform/website is those screenshots?
Quotes are from OptionsXpress but I don't use them anymore. Just use to get quotes.
  • #7
  • Apr 17, 2017 1:30pm Apr 17, 2017 1:30pm
Quoting srt
{quote} Quotes are from OptionsXpress but I don't use them anymore. Just use to get quotes.
If you don't mind-What firm do you use now?(you can answer in PM)
And to fully clarify things for me:
As per you screenshot:
1.I can "buy to open" around 800 Call contracts @ 4.20 strike-140$ right?And then after some time "sell to close" them to the market.
2.I can "sell to open" around 2000 Call contracts @ 4.15 strike 140$....but will I be able to "buy to close" all of my contracts?Because ask quantity is 3 times lower then bid(800<2000) Or it doesn't matter and if I buyed(or selled) some contracts I can close them at any given time immediately?
  • #8
  • Apr 17, 2017 1:37pm Apr 17, 2017 1:37pm
Quoting WellOrgMan
{quote} If you don't mind-What firm do you use now?(you can answer in PM) And to fully clarify things for me: As per you screenshot: 1.I can "buy to open" around 800 Call contracts @ 4.20 strike-140$ right?And then after some time "sell to close" them to the market. 2.I can "sell to open" around 2000 Call contracts @ 4.15 strike 140$....but will I be able to "buy to close" all of my contracts?Because ask quantity is 3 times lower then bid(800<2000) Or it doesn't matter and if I buyed(or selled) some contracts I can close them at any given time immediately?...
Yes, you have it correct. You can buy/sell any time just like any other market. As for the bid/ask quantities, those will be changing all the time so if I checked again now the "ask" column could have more than the "bid" column. Today stocks are higher in price so less sellers available. If there's not enough liquidity @ a certain price & you want to close then you'll have to jump to the next price level to fill the remaining contracts. New orders are always entering though so if you wait a bit, you'll get filled unless the market is moving fast. You can sell before you buy which is just like going short. If you want to go short you can also buy puts rather than sell calls.

I use Interactive Brokers. Just cheaper transaction costs. Minimum account size is $10,000.

***I just got a new quote & all 4.20 "ask" have been purchased or moved up so now 4.25 is "ask" price but buyers are still @ 4.15.
Attached Image
  • #9
  • Apr 17, 2017 2:04pm Apr 17, 2017 2:04pm
Quoting srt
{quote} Yes, you have it correct. You can buy/sell any time just like any other market. As for the bid/ask quantities, those will be changing all the time so if I checked again now the "ask" column could have more than the "bid" column. Today stocks are higher in price so less sellers available. If there's not enough liquidity @ a certain price & you want to close then you'll have to jump to the next price level to fill the remaining contracts. New orders are always entering though so if you wait a bit, you'll get filled unless the market is moving...
Got it!
Thank you very much for your help and guidance.
  • #10
  • May 17, 2017 8:25am May 17, 2017 8:25am
A good place to start is at tastytrade and specially options 101 with Brittany and remember stay small and trade Often!
  • #11
  • May 17, 2017 8:49am May 17, 2017 8:49am
I took a course with Investools that explained a lot of your questions. They even provided a strategy based on finding stocks using fundamentals and then buying the options based on technicals. I think TD Ameritrade bought them out. You might consider calling TD Ameritrade and ask them if they still have this course, and the Investools search engine. It was attached to Options Xpress at a discount. It takes days to explain it all, so I am not even going to attempt it. Try talking to them.
You cannot be extraordinary by being normal
  • #12
  • May 17, 2017 9:02am May 17, 2017 9:02am
Quoting hollandpippin
A good place to start is at tastytrade and specially options 101 with Brittany and remember stay small and trade Often!
Quoting dkrock
I took a course with Investools that explained a lot of your questions. They even provided a strategy based on finding stocks using fundamentals and then buying the options based on technicals. I think TD Ameritrade bought them out. You might consider calling TD Ameritrade and ask them if they still have this course, and the Investools search engine. It was attached to Options Xpress at a discount. It takes days to explain it all, so I am not even going to attempt it. Try talking to them.
Thanks for your help.
  • #13
  • May 23, 2017 10:40pm May 23, 2017 10:40pm
Quoting srt
{quote}
1-American Style options can be sold any time.
2-European Style options must be held to expiration.
Not to butt in where I may not be wanted, but I think this is a typo...

American style options can be *exercised* at any time, while European options can only be exercised only on the expiration date. Either of the two options can be bought or sold prior to expiration. In other words you don't have to hold either to maturity... they can (and are) sold early to other investors.

The only reason you would ever exercise an option early is if there was a massive dividend being declared on the stock and there was limited time to expiry on your call option. There's an old expression in options land that an option "is always worth more alive than dead", meaning that if you own an option with let's say 3mo to expiry and it's "in the money" (the strike is lower than the current price on a call, or above the current price on a put) you shouldn't exercise it early, you should simply sell it. The time value (or theta) has value which you would not realize by exercising early.

Here is an example which i hope helps just looking at a simple call option.

Attached Image (click to enlarge)
Click to Enlarge Name: 2017-05-23_options example.png Size: 90 KB
  • #14
  • May 23, 2017 10:45pm May 23, 2017 10:45pm
Also, I would echo what another user stated -- I would either trade small or start a "paper-trading" account to get a better sense for the dynamics here. You can lose a lot of money in options if you're not careful. The commercials will only tell you about the untold riches you can make but if you're not careful you can get smoked if the market moves against you.
  • #15
  • May 24, 2017 7:16am May 24, 2017 7:16am
Quoting InfinitySL
{quote} Not to butt in where I may not be wanted, but I think this is a typo... American style options can be *exercised* at any time, while European options can only be exercised only on the expiration date. Either of the two options can be bought or sold prior to expiration. In other words you don't have to hold either to maturity... they can (and are) sold early to other investors. The only reason you would ever exercise an option early is if there was a massive dividend being declared on the stock and there was limited time to expiry on your...
Thanks for the correction. Yes, "exercised" & NOT "sold".

As far as having options exercised prior to expiration, I will at times have options exercised from me several weeks before expiration if it's deep in the money with no "premium" value remaining. Also, sometimes if the liquidity is poor in the options, it's easier to exercise the option & sell the underlying but usually you should be able to close an option if you're willing to sell it for no premium to underlying. Most times though it makes no sense to exercise early.
  • #16
  • May 24, 2017 11:01am May 24, 2017 11:01am
Agree. There's a stock i was going to buy options on where the bid/ask was roughly $0.50 bid / $4.00 ask. And the strike was out of the money... In a case like that, the exercise makes sense (or to just not buy the options in the first place).
  • #17
  • Last Post: Jun 3, 2017 3:04pm Jun 3, 2017 3:04pm
Quoting InfinitySL
{quote} Not to butt in where I may not be wanted, but I think this is a typo... American style options can be *exercised* at any time, while European options can only be exercised only on the expiration date. Either of the two options can be bought or sold prior to expiration. In other words you don't have to hold either to maturity... they can (and are) sold early to other investors. The only reason you would ever exercise an option early is if there was a massive dividend being declared on the stock and there was limited time to expiry on your...
True.
I don't have experience with options but most of them gives back more money if you sold them back to market rather than exercise them...the theta and volatility can bring much more profits then the underlying price move.
Just for example:
AAPL
JUNE 2017 (EXPIRATION: 06/30)
Attached Image (click to enlarge)
Click to Enlarge Name: aapljune.JPG Size: 72 KB

AUGUST 2017 (EXPIRATION: 08/18)
Attached Image (click to enlarge)
Click to Enlarge Name: august.JPG Size: 100 KB
SMKNYC---LIAR
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