Reasoning Behind Spreads

Hello all,
I have been tracking your progressive on this long journey of "learning to trade options" via short updates from Bob. What I am observing (from afar) is that your meetings are being held back to the lowest common denominator of knowledge. I do not mean to be offensive in any way, but unlike the IBD meetings where the intent is to be able to discuss the market and evaluate some potential trades, I believe the Options Group would like to be able to actually learn how to trade options. That is an entirely different objective and requires some structure and meeting objectives in order to move ahead.

I suggest that you find a course, any course on trading options that you can all follow along as a discussion guide. You have to be able to at least get through the basics as a group or you will never go beyond rehashing what a "put" is every meeting.

That brings me to my title topic. Options were developed as a hedging device for stocks.  Because we can also use options against indices, etc., we use the term "underlyings" with options. As options have evolved and grown in popularity, they have been used solely by themselves without owning a specific stock at all. That is where spreads came into play. The spread becomes a hedge using just options. This is very important because trading single options can be very risky. By using a combination of longs and shorts, calls and puts, we can define the risk to an acceptable level.

This can get very complicated. It is not simple. It is not something you learn at a weekend seminar.  It is also not "Rocket Surgery" (a Bushism).  Its' complexity comes from having so many variables that can effect your profitability.  With stocks, they either go up, sideways or down.  The key to options, is understanding how to take advantage of whatever the market gives you.  The more you understand how the options instruments change with the market, the more prepared you are to act upon that advantage.

To gain this advantage, it helps a great deal to understand how each individual segment of the spread acts under different market conditions. As part of learning the basic mechanisms, I encourage you to disect each of the four instruments (long call, short call, long put, short put) using the TOS analyzer, to see how they react to market changes and what they contribute to your profits.  Take notes on your observations and share them with the group.  Once you have done this, you can move on to combining the individual segments into spreads and seeing how they behave as well.

The thing to remember is that options are simply "premium" for a risk. An option is made up of: the value of the underlying, volatility (perceived risk) and time exposure. That's it. You change any of these three and you change the premium. It is very easy to enter one the four instruments into TOS and then manipulate these three variables while observing the effects on the premium. This way you learn the "personality" of the instrument. You make your observations using the graph above and the "slice" lines below. The three Greeks you use are Delta for the value, Vega for the volatility, and Theta for the time. You can change any one or all of them. 

You absolutely have to learn how the Greeks work, because later on you will manage your portfolio using the Greeks.  Depending upon market conditions, you will want to add or subtract Delta, Theta or Vega by adding or closing different types of trades.

I have told Bob that if you get on a structured learning process, I would be happy to come in and help get over some of the rough spots.

Good luck on your journey,

Tom

Candlesticks

At our July 8th meeting we touched briefly on candlestick charts and it was noted that at 9:00PM that very night there was to be an Options-University sponsored webinar on the subject. It was presentation by Steve Nison the guy who was primarily responsible for introducing the centuries old Japanese system to the WEST. There is a lot of good basic stuff on candlesticks in the 1.5 hour webinar. Just ignore the promo stuff for Steve's DVDs. Here is the link.

At our June 10th meeting I promised to send a report [“The Ten Laws of Day Trading” a 8-page PDF file] written by Peter Rezicek of shadowtrader.net (one of the Think or Swim companies). I think there are some very important concepts in the report no matter what you are trading (stocks or options) or what your time horizon is (Day, Swing, or Invest). You can get that report by going to http://www.shadowtrader.net/. Once at the website, enter your e-mail address to get the report as well as Peter Rezicek’s short, weekly, video concerning the market for the coming week that will be sent to your e-mail address every Sunday night.

If you have a Think or Swim account, you can listen/watch Peter Rezicek’s daily commentary on the markets during every day’s market hours. Here is the “path” once logged on:

“Support/Chat” (upper left to the right of “Account Info” on the TOS home page)/”Chat Room” tab/Shadow Trader/left click “Watch’ and “Listen” in the lower right hand corner.

Talyor asked that I send the first three chapters of the following excellent book on options: "Options Trading 101, from Theory to Application" by Bill Johnson of optionsatoz.com http://www.optionsatoz.com/ . Book is $19.79 at Amazon.com. The first three FREE chapters can be downloaded at:

http://www.optionsuniversity.com/Options101/Book/3FreeChapters.pdf (copy and paste if necessary)

A "Base" Lesson

Check out this interesting (and short) discussion about "Base Stages" in one IBDS's "Daily Stock Analysis" presentations. There are three stocks discussed, and the third (NFLX) concerns the "Base" discussion of interest. If I read it right, base count for all charts starts with the FIRST base to emerge as the result of the recent Bear Market correction.

Not sure I should give anyone my thought as I have been mostly in cash but have taken some short plays through ETFs and options. Needless to say not good trading at this point. I did look up Schwabs ratings on the WFT and they gave it an "F" however not sure what the pricing was when you were looking at it. It has done well the past week or so and given what I see it should do well in the short run.
I don't understand what I am seeing in IBD. They say we are in an uptrend which I agree but the stocks in the "20" and "100" boxes mostly have D and E so how can that be good.
Those of you who bought the drillers after our last meeting should be looking good.
I still do not like the market. It has been up a low volume and poor leadership. It should be all about the fundamentals however people still are subscribing to "less bad is good" and seeing what they want to see. Saying all that, the trend overall is UP and as they say "the trend is your friend".
Conclusion: I don't like the market but the tend is your friend. There, I can't be wrong.

Trading Services

Ray:

I amswering your question in a new post rather than commenting on your post as did the Salmons.

No, I don't subscribe to any of the services you mentioned. As you know, I am a big fan of TOS (and related companies) and am considering subscribing to ShadowTraderPro Swing Trader, a daily newsletter service delivered by none other than thinkorswim's Chief Technical Strategist and ShadowTrader broadcast moderator, Peter Reznicek (the guy you can listen to (and watch) during the trading day at the ShadowTrader "Chat Room" at TOS. Check out http://shadowtrader.net for a full description of the $20/Mo newsletter as well as other free stuff. Finally, I get a free daily newsletter called "Market Plot" from another of TOS's companies "redoption." you can get it too at http://www.redoption.com/resources.php

Chatty bunch. Has anyone subscribed to Vector Vest, ETFguide.com, Trending123.com or any other paid services. If so what is your thoughts on the service, Ray

checking in

I will check the blog daily. I like to have a fresh point of view on where the market is going. I recently read an article in IBD and a person who runs a mutual fund was quoted. I followed up and found he writes a weekly market comment on his site. He hedges his investments so in some ways he has no strong bias on which way the market goes. It is updated each Monday and I have found it refreshing as compared to all the talking heads on TV talking their book. Check it out at hussmanfunds.com. Middle of the page under "Weekly Market comment". Ray Johnson

Great Options Platform/Broker - A Test

This is a post that I am doing just as a test. After I have posted it and find that the thing I am trying actually works, I will delete the post.

What am I trying?? Simple. If I want to alert fellow bloggers to an item for which I have an internet address. I will just post the internet address as a "Link" rather than all of its content. That way the BLOG will not be cluttered with endless text but the information (link) is still there if any Blogger is interested in seeing it.

OK, so here is the test (Googles instructions for doing this are at: http://help.blogger.com/bin/answer.py?answer=41379&topic=12507.

Hey all. I have found a fantastic options trading platform/broker. I urge you to learn more by clicking here!

How to Invest in Options 5 of 5 Strategies

How to invest in options, continued
Strategies
Spread
Straddle
Naked Put Writing

Additional strategies involving the use of options
Options are very flexible tools for a wide range of strategies. Below is a brief introduction to some of the more common strategies involving a combination of options contracts.
Debit or Credit Spread: A spread is a transaction in which one simultaneously buys one option and sells another option, with different terms, on the same underlying security. In a call spread, the options are calls. The basic idea behind spreading is that the investor is using the sale of one call to reduce the risk of buying the other call. This strategy would be most useful if the investor was expecting a move in the stock but not a dramatic one. Spreads must generally be done in a margin account.
When a spread order is entered, the options being bought and sold must be specified as well as the price to be executed and whether that price is a debit or credit.
Calendar Spread: A calendar spread, also frequently known as a time spread, involves the sale of one option and the simultaneous purchase of a more distant option, both with the same strike price. The neutral philosophy for using calendar spreads is that time will erode more quickly on the near term options. If this happens, the spread will widen and a profit may result at near-term expiration.
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Straddle Buying: A straddle purchase consists of buying both a put and a call with the same terms. The purchase allows the buyer to make large potential profits if the stock moves far enough in either direction. The magnitude of the expected move must be enough to effectively pay the cost of both premiums and earn profits. This strategy would be particularly attractive when option premiums are low (implied volatility is relatively low). The buyer has a predetermined maximum loss, equal to the amount of his initial investment.
Straddle Selling: The sale of a straddle involves selling both a put and a call with the same terms. As with any type of option sale, the straddle sale may either be covered or uncovered. Both uses are fairly common. The covered sale of a straddle is very similar to the covered call writing strategy and would generally appeal to the same type of investor. The investor must be aware that while the call side of the straddle is covered, the put is not covered and the investor must be willing to buy the stock at the lower price if exercised upon. The uncovered straddle write is attractive to the more aggressive investor who is interested in selling large amounts of time premium in hopes of collecting larger profits if the underlying stock remains fairly stable. In this strategy the investors risk is not defined and therefore theoretically unlimited.
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Naked Put Writing: Some investors who wish to accumulate a stock at prices lower than today’s market may find writing naked puts useful. In this strategy the investor will sell naked puts to collect option premium and feel fully comfortable if exercised upon and forced to buy the stock lower. If the stock never drops to the options strike price, the investor was still able to collect and keep the option premium received.
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How to Invest in Options 4 of 5 LEAPS

How to invest in options, continued
LEAPS
LEAPS are Long-term Equity Anticipation Securities. A LEAP is nothing more than a listed option that is issued with two or more years remaining until expiration.
Many of the strategies involving LEAPS are similar to those used for shorter-term options but special considerations apply. Generally, the longer term the option, the less rapid the decay of option premium. This is a good thing for an investor with an intermediate to longer-term focus. Many shorter-term options favor the seller as their premiums erode making it necessary for the buyer to not only be right, but to be right, now. That coupled with a generally larger spread (percentage between bid and offer) and typically higher commission leave the buyer of short-term options sometimes playing against the odds. The fact that the option premium in LEAPS will tend to erode more slowly, therefore, will tend to favor the buyer and be less advantageous to the seller, for instance, a covered writer.
LEAPS will also be much more responsive to changes in dividends and interest rates than shorter-term options. A well-laid plan can be spoiled by the effect of a meaningful change in interest rates which is certainly conceivable over a two or three year period. Therefore, it is important to recognize that many of the variables used to price options can either be magnified in the case of LEAPS or can change considerably over the course of two or three years, and dramatically change the way the market prices of LEAPS.LEAPS will become regular option contracts when they become 9-month options.

How to Invest in Options 3 0f 5 Puts and Calls

How to invest in options, continued
Puts & Calls
Put Buying
Selling Calls

Put Buying
A put option gives the holder the right, but not the obligation, to sell the underlying security at the strike price at any time until the expiration date of the option. If an investor wishes to capitalize on an expected drop in a stock’s price he must either sell the stock short or buy a put option on the stock. The put buyer has limited profit potential just like the short seller (as prices cannot drop below zero), but his losses are limited to the amount of his initial investment (premium), something that cannot be said for the short seller.
1) Buying puts to profit from downward price movements:
Buying an XYZ July 50 put option gives you the right to sell 100 shares of XYZ common stock at $50 per share at any time before the option expires in July. The right to sell stock at a fixed price becomes more valuable as the price of the underlying stock decreases. Assume that the price of the underlying shares was $50 at the time you bought your option and the premium you paid was 3 ½ (or $350). If the price of XYZ stock drops to $45 before your option expires and the premium rises to 5 ½, you can sell your option for $550, collecting a $200 profit.
The profitability of similar examples will depend on how the time remaining until expiration affects the premium. Remember, time value declines sharply as an option nears its expiration date.
If the price of XYZ instead rose to $55 and the option premium fell to 7/8, you could sell your option premium to partially offset the premium you paid. Otherwise, the option would expire worthless and your loss would be the total amount of the premium paid.
This strategy allows you to benefit from a downward price movement while limiting losses to the premium paid.
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Selling Calls
As a call writer, you obligate yourself to sell, at the strike price, the underlying shares of stock upon being assigned an exercise notice. For assuming this obligation, you are paid a premium at the time you sell the call.
Covered Call Writing
The most common strategy is writing calls against a long position in the underlying stock, referred to as covered call writing. Investors write covered calls primarily for the following reasons:
to realize additional return on their underlying stock by earning premium income; and
to gain some protection (limited to the amount of the premium) from a decline in the stock price.
Covered call writing is considered to be a more conservative strategy than outright stock ownership because the investor’s downside risk is slightly offset by the premium he receives for selling the call.
As a covered call writer, you own the underlying stock but are willing to forsake price increases in excess of the option strike price in return for the premium. You should be prepared to deliver the necessary shares of the underlying stock (if assigned) at any time during the life of the option. Of course, you may cancel your obligation at any time prior to being assigned an exercise notice by executing a closing transaction, that is, buying a call in the same series.
A covered call writer’s potential profits and losses are influenced by the strike price of the call he chooses to sell. In all cases, the writer’s maximum net gain (i.e., including the gain or loss on the long stock from the date the option was written) will be realized if the stock price is at or above the strike price of the option at expiration or at assignment. Assuming the stock purchase price is equal to the stock’s current price: 1)If he writes an at-the-money call (strike price equal to the current price of the long stock), his maximum net gain is the premium he receives for selling the option; 2) If he writes an in-the-money call (strike price less than the current price of the long stock), his maximum net gain is the premium minus the difference between the stock purchase price and the strike price; 3) If he writes and out-of-the-money call (strike price greater than the current price of the stock), his maximum net gain is the premium plus the difference between the strike price and the stock purchase price should the stock price increase above the strike price.
If the writer is assigned, his profit or loss is determined by the amount of the premium plus the difference, if any, between the strike price and the original stock price. If the stock price rises above the strike price of the option and the writer has his stock called away from him (i.e., is assigned), he forgoes the opportunity to profit from further increases in the stock price. If, however, the stock price decreases, his potential or loss on the stock position may be substantial; the hedging benefit is limited only to the amount of the premium income received.
Assume you write an XYZ July 50 call at a premium of 4 covered by 100 shares of xyz stock which you bought at $50 per share. The premium you receive helps to fulfill one of your objectives as a call writer: additional income from your investments. In this example, a $4 per share premium represents an 8% yield on your $50 per share stock investment.
If the stock price subsequently declines to $40, your long stock position will decrease in value by $1000. This unrealized loss will be partially offset by the $400 in premium you receive for writing the call. In other words, if you actually sell the stock at $40, your loss will be only $600.
On the other hand, if the stock price rises to $60 and you are assigned, you must sell your 100 shares of stock for $5000. By writing a call option, you have forgone the opportunity to profit from an increase in value of your stock position in excess of the strike price of your option. The $400 in premium you keep, however, results in a net selling price of $5400. The $6 per share difference between this net selling price ($54) and the current market value ($60) of the stock represents the “opportunity cost” of writing this call option.
Of course, you are not limited to writing an option with a strike price equal to the price at which you bought the stock. You might choose a strike price that is below the current market price of your stock (and in-the-money option). Since the option buyer is already getting part of the desired benefit, appreciation above the strike price, he will be willing to pay a larger premium, which will provide you with a greater measure of downside protection. However, you will also have assumed a greater chance that the call will be exercised.
On the other hand, you could opt for writing a call option with a strike price that is above the current market price of your stock (an out-of-the-money option). Since this lowers the buyer’s chances of benefiting from the investment, your premium will be lower, as will the chances that your stock will be called away from you.
In short, the writer of a covered call option, in return for the premium he receives, forgoes the opportunity to benefit from an increase in the stock price which exceeds the strike price of his option, but continues to bear the risk of a sharp decline in the value of his stock which will only be partially offset by the premium received for selling the option.
Uncovered Call Writing
A call option writer is uncovered if he does not own the shares of the underlying security represented by the option. As an uncovered call writer, your objective is to realize income from the writing transaction without committing capital to the ownership of the underlying shares of stock. An uncovered option is also referred to as a naked option. An uncovered call writer must deposit and maintain sufficient margin with his broker to assure that the stock can be purchased for delivery if and when he is assigned.
Writing uncovered calls can be profitable during periods of declining or generally stable stock prices, but investors considering this strategy should recognize the significant risks involved:
If the market price of the stock rises sharply, the calls could be exercised. To satisfy your delivery obligation, you may have to acquire stock in the market for more than the option’s strike price. This could result in substantial loss.
The risk of writing uncovered calls is similar to that of selling stock short, although, as an option writer, your risk is cushioned somewhat by the premium received.
As an example, if you write an XYZ July 65 call for a premium of 6, you will receive $600 in premium income. If the stock price remains at or below $65, you will not be assigned on your option and, because you have no stock position, the price decline has no effect on your $600 profit. On the other hand, if the stock price subsequently climbs to $75 per share, you likely will be assigned and will have to cover your position at a loss of $400 ($1000 loss on covering the call assignment offset by $600 in premium income).
As with any option transaction, an uncovered writer may cancel his obligation at any time prior to being assigned by executing a closing purchase transaction. An uncovered call writer also can mitigate his risk at any time during the life of the option by purchasing the underlying shares of stock, thereby becoming a covered writer.
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How to Invest in Options 2 0f 5 Options Basics

Options Basics
Puts & Calls
Specifications
Value

Puts and Calls
Options come in two types, puts and calls. A call option gives the holder the right, not the obligation, to buy 100 shares of the underlying security at a fixed price for a fixed period of time. A put option gives the holder the right, not the obligation, to sell 100 shares of the underlying security for a fixed price for a fixed period of time. If the option is not exercised or sold by expiration, it becomes worthless.
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The Four Specifications of an Options Contract
There are four specifications that describe an options contract. They are: the type (put or call), the underlying security, the expiration date, and the striking price. As an example, and option referred to as an “XYZ Jan 40 call” is an option to buy 100 shares of XYZ stock for $40 per share. This option expires on the Saturday after the third Friday in January. The price is quoted on a per-share basis. This means that an option priced at $4 would cost the investor $400 (4 * 100) plus commissions.
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The Value of Options
An option is a derivative security. Its value is determined by the underlying stock and will fluctuate as the underlying stock rises and falls. As time passes the options price, the premium, erodes until it ultimately expires worthless. That is why options are referred to as a “wasting asset”. Fortunately, your option can be exercised, invoking the right expressed by the contract, or it can be sold to claim its value.
Options Relative to Price
There are three different terms for describing where an option is trading in relation to the price of the underlying stock. A call option is said to be out-of-the-money if the stock is selling below the strike price of the option. The call option would be in-the-money if the stock were trading above the strike price. An option is at-the-money if the stock price and the strike price are the same.
The intrinsic value of a call option is the amount by which the stock price exceeds the strike price. If the stock price is below the strike, there is no intrinsic value. The time value of an option is the amount by which the option premium itself exceeds the options intrinsic value. Intrinsic value plus time value = the options premium. As an example: Suppose the XYZ Jul 50 Calls are trading at 4 while XYZ is trading at 52. The options intrinsic value is 2 and the time value is 2. An investor is, in effect, paying 2 to see what happens between now and when the option expires in July.
An option normally has the largest amount of time value when the stock price is equal to the strike price. As an option gets further in or out-of-the-money the time value will erode.
Factors influencing the price of an option
There are four major factors that determine the price of an option, and two that contribute to a lesser amount:
1-The price of the underlying stock.
2-The strike price of the option itself.
3-The time remaining until expiration.
4-The volatility of the underlying stock.
And to a lesser extent:
The current risk free interest rate (usually the 90 day T-bill)
Dividend rate of the underlying stock.
Probably the most important influence on the options price is the stock price and its relation to the strike price. Options very far in or out-of-the-money may have markedly less time value and sell closer to their intrinsic value.
Another important determinant of an option’s premium is the time remaining until expiration. Option time value erodes dramatically as an option approaches its expiration. The rate of decay is related to the square root of the time remaining. Thus a 3-month option decays at twice the rate of a 9-month option (square root of 9=3).
The volatility of the underlying security is another important component of an options price. Volatile stocks make for higher options prices. There are two different kinds of volatility. There is historical volatility and there is implied volatility. Historical volatility estimates volatility based on past price activity. Implied volatility starts with the option price as a given and works backwards to ascertain the theoretical value of volatility equal to the market price minus any intrinsic value. It measures the amount of volatility the market is pricing into the option.
The dividend rate and the 90 day T-bill rate have to do with the cost to carry the contract.
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Ho To Invest In Options 1 of 5 Introduction

Course IV -- How To Invest In Options
Introduction
An option is a derivative security. Its value is determined by the underlying issue, which for our purposes, we’ll assume is either common stock or an index (a widely followed basket of stocks).
Benefits of Exchange-traded Options
Although the history of options extends several centuries, it was not until 1973 that standardized, exchange-listed and government-regulated options became available. In only a few years, these options virtually displaced the limited trading in over-the-counter options and became an indispensable tool for the securities industry.
Orderly, efficient and liquid markets
Standardized option contracts provide orderly, efficient, and liquid option markets. Except under special circumstances, all stock option contracts are for 100 shares of the underlying security. The strike price of an option is the specified share price at which the shares of stock will be bought or sold if the holder exercises his option. Strike prices are listed in increments of 2 ½, 5, or 10 points, depending on the market price of the underlying security, and only strike prices a few levels above and below the current market price are traded. At any given time a particular option can be bought with one of four expiration dates. As a result of this standardization, option prices can be obtained quickly and easily at any time during trading hours. Additionally, closing option prices (premiums) for exchange-traded options are published daily in IBD as well as many other newspapers. Option prices are set by buyers and sellers on the exchange floor where all trading is conducted in the open, competitive manner of an auction market.
Flexibility
Options are an extremely versatile investment tool. Because of their unique risk/reward structure, options can be used in many combinations with other option contracts and/or other financial instruments to create either a hedged or speculative position. Some basic strategies will be described in options strategies.
Leverage
A stock option allows you to fix the price, for a specific period of time, at which you can purchase or sell 100 shares of stock for a premium, which is only a percentage of what you would pay to own the stock outright. That leverage means that by using options you may be able to increase your potential benefit from a stock’s price movements.
For example, to own 100 shares of a stock trading at $50 per share would cost $5000. On the other hand, owning a $5 call option with a strike price of 50 would give you the right to buy 100 shares of the same stock at any time during the life of the option and would cost only $500. Remember that premiums are quoted on a per share basis; thus a $5 premium represents a premium of $5 * 100, or $500, per option contract. Let’s assume that one month after the option was purchased, the stock price has risen to $55. The gain on the stock investment is $500, or 10%. However, for the same $5 increase in the stock price, the call option premium might increase to $7, for a return of $200, or 40%. Although the dollar amount gained on the stock investment is greater that the option investment, the percentage return is much greater with options than with stock. Leverage also has downside implications. If the stock does not rise as anticipated or falls during the life of the option, leverage will magnify the investment’s percentage loss. For instance, if in the above example the stock had instead fallen to $40, the loss on the stock investment would be $1000 or (20%). For this 10% decrease in stock price, the call option premium might decrease to $2 resulting in a loss of $300 (60%). You should take note, however, that as an option buyer, the most you can lose is the premium amount you paid for the option.
Limited Risk for Buyer
Unlike other investments where risks may have no limit, options offer a known risk to buyers. An option buyer absolutely cannot lose more than the price of the option, the premium. Because the right to buy or sell the underlying security at a specific price expires worthless if the conditions for profitable exercise or sale of the contract are not met by the expiration date. An uncovered option seller, on the other hand, may face unlimited risk.
Guaranteed Contract Performance
The Options Clearing Corporation (OCC) guarantees that the terms of an option contract will be honored.
Prior to the existence of options exchanges and OCC, an option holder who wanted to exercise an option depended on the ethical and financial integrity of the writer or his brokerage firm for performance. Furthermore, there was no convenient means of closing out one’s position prior to the expiration of the contract.
OCC, as the common clearing entity for all SEC-regulated option transactions, resolves these difficulties. Once OCC is satisfied that there are matching orders from a buyer and seller, it severs the link between the parties. In effect, OCC becomes the buyer to the seller and the seller to the buyer, thereby guaranteeing contract performance. As a result, the seller can buy back the same option he has written, closing out the initial transaction and terminating his obligation to deliver the underlying stock or exercise value of the option to the OCC, and this will in no way affect the right of the original buyer to sell, hold or exercise his option. All premium and settlement payments are made to and paid by the OCC.
Further details of Options Trading
Options expire on the Saturday following the third Friday of the expiration month, although the third Friday is the last day of trading.
Option trades have a one-day settlement. The trade settles on the next business day after the trade. Purchases must be paid for in full, and the proceeds from sales are credited to accounts on the settlement day. Some brokerage firms require settlement on the same day as the trade, when trade occurs on the last trading day of an expiration series.
Options are opened for trading in rotation. When the underlying stock opens for trading on any exchange, regional or national, the options on that stock then go into opening rotation on the corresponding option exchange. The rotation system also applies if the underlying stock halts trading and then reopens during a trading day; options on that stock reopen via a rotation.
When the underlying stock splits or pays a stock dividend, terms of its options are adjusted. Such an adjustment may result in fractional striking prices and in options for other than 100 shares per contract.

options meeting

I might be able to attend 02/10/09 if we have the space. Will check with Glen to find out if she can make it. Attended IBD seminar in Charlotte this past Saturday. Excellent 4hr presentation. Ted

Meeting preparations

I am willing to participate with Robert. My impression in the past was that several people that were interested were not interested enough to invest some "homework" time in learning basics. If that comes across rude, then I apologize for that. I put tremendous time and energy into this and have tried in the past to get a group as this going, without success.

Let me know the interest and entry level for participants. Basic understanding of option instruments should be sufficient. We can go from there.

Tom

New TV Show on Options

There is a new options TV show that you might find interesting. It is sponsored by Think or Swim, the online broker I introduced to you at our one and only meeting so far. The show airs at 11:30 PM to midnight on Fridays with repeats Saturdays and Sundays at 6:00-6:30 AM. The shows are also archived at http://www.cnbc.com/id/28606104/ where you can watch/listen at anytime with the convenience of pausing etc.

In the only show I've seen, they talked about trade opportunities for this coming week [currently focused on the present earnings season (GE, AXP, PFE, etc) and takeovers/mergers (DNA/Roche, PFE/WYE, YHOO/MSFT)].

The discussions were fast paced (good reason to go archive vs. live so that you can rewind, pause, etc.) but the trade strategies were not more complicated than Bull or Bear spreads.


Bull and Bear spreads would be excellent topics for group discussions at future meetings.