Assumes working knowledge of options and a willingness to learn about new things — like volatility
After creating a position with SPY on Wednesday at 111.07 I added to my covered calls on Thursday, buying SPY at 110.12, selling 110 strike calls at 0.71. At one point this morning (Friday) , when SPY was off to about 109.5 my 111 strike calls had dropped from Wednesday’s 0.83 to 0.08. These strong moves are characteristic of options with only a …
Update 3-Feb-2011: Schwab recently added weekly and quarterly option support to all their trading platforms. See here for more information. Update: In March 2011 Schwab plans to introduce StreetSmart Edge™, their new flagship trading platform. Among other things this platform will include, “Major options trading improvements, including the ability to trade weekly and quarterly options.” When SPY dropped to 111 this morning I started …
UPDATE — Redirected to Black Swans I’ve been thinking about various strategies for dealing with limiting losses. Many investment strategies exhibit moderate upside potential, with large exposure to downside risk. For example, on average the broad equity markets have shown annualized gains in the range of 10% over the long term, but these gains are often punctuated with large downside risks (market panics) that are …
Created a covered call position today with SPY at 106.89 and 107 SPY calls expiring this Friday–the 23rd. The calls sold (to open) at 1.18, giving a 1.2% best case profit for the week if SPY closes Friday above 107. Fidelity supports trading these weekly options, but apparently Schwab does not.
Anyone that trades options knows that the pace quickens the last few days before expiration. The delta (the change in option price relative to the underlying) for the ATM option is still around .5, but instead of gradual changes for the deltas on the strikes in / out of the money, the curve starts resembling a step function, going from zero for out-of-the-money, to …
