Options FAQ
FAQ Categories
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FAQ Categories
- General Information
- Basics
- Options Exercise
- Strategies
- Option Price Behavior
- Expiration
- Trade Entry & Execution
- Options Assignment
- LEAPS® & Cycles
- Splits, Mergers, Spinoffs & Bankruptcies
- Weekly Options
- Technical Information
General Information
- Can options be traded on any listed stock?
- Is increased open interest bullish?
- On a recent trading day, the volume of options traded on a specific contract was about 3,000, yet the next day open interest had only increased by approximately 1,800. How can that be?
- What does liquidity mean?
- How do I select the proper strike price when I purchase an option?
- What do "Buy to Open" and "Sell to Close" mean?
- Can I sell my stock today at a loss for this calendar year and simultaneously buy a call option that allows me to participate in any upward movement in the stock I just sold?
- I recently bought a LEAPS® call option. The stock has risen in value, and so has the call option. I'd like to sell my contract, but am wondering if I am obligating myself to deliver stock if another option holder exercises their call option?
- Where can I see a list of all options?
- I'm looking for options with large open interest so I can guarantee that I can find adequate size for my 8 contract order. Where can I find them?
- Is there a report that shows all Equity option products that have non-standard terms of settlement and/or multiple components of delivery?
- Can you tell me about the one point strikes program?
- Where can I find historical options prices?
- As the end of the year approaches, I'm wondering if there is any guidance on the tax treatment of options. Can you help?
- I am interested in receiving a free Options Expiration Calendar. How and where can I get this?
- During 2007, I engaged in a covered call position that has since expired with the short call not being exercised. For tax purposes, is the premium received from the sale of the call considered short-term or long-term capital gain?
- Can I trade options in my IRA?
- Is there a source that I use to obtain put/call ratios for individual stocks? Can I get historical put/call ratios too?
- What are the trading hours for ETFs?
- What are equity options position limits and where can I find them?
- What is the highest option volume day ever recorded?
- How do employee stock options differ from standardized options?
- Have option trading hours changed? What are the new hours?
- Can you provide further information on Quarterly Options?
- Can you provide further information on options trading in penny increments?
- Can you tell us what types of currency options are available for trading as of December 2007?
- I recently sold a covered call to open and noticed that the value of the option appears as a negative in my account. How can this be?
- Can you tell me about the $0.50 strike program?
Basics
- What is a stock option?
- What is a call?
- What is a put?
- What do the terms American-style and European-style mean when referring to options?
- How do I read options quotes?
- How do LEAPS® differ from conventional options?
- How do I find a broker?
- What is an Exchange?
- Can I talk to a live person about my options-related questions?
- What is the Options Disclosure Document?
- What is covered at an OIC seminar?
- What is a strike price?
- Why is the XYZ 50 strike call option quote showing a last trade of $10.50 when XYZ is trading at $68 a share? Shouldn’t the call option at least be trading near the $18 of intrinsic value?
Options Exercise
- Can I exercise my right to buy the stock at any time up to the expiration date?
- What is the difference between American-style exercise and European-style exercise?
- Are all index options European style exercise?
- If I exercise an in-the-money call option, how soon can I sell the stock?
- In order to exercise a put or call, do I have to have cash or stock in my account to buy (in the case of a call) or sell (in the case of a put) the shares of stock that underlie the contract?
- My option expired 60 cents in-the-money. Would my broker automatically exercise that option?
- I am confused about exercising my long option position. I believed a stock was going up and bought a 60 strike call for $2.00 when the stock was $59. Then, if the stock does increase in value to $62 and my contract increases in value - to $4.30, I understand I can make a profit by exercising the call. But if I exercise the call, I have to buy 100 shares of the stock at the strike price. What if I only have $2000 in my account and the call is for 60 dollars - will my broker cover me?
- Is there a comprehensive list on your website of options that expire Friday morning?
- I have a covered call (long stock + short call) where the short call option is now in-the-money. When can I expect to be assigned?
- I have a calendar call spread, and the call I sold is now in-the-money. Will my brokerage firm exercise the long side of my spread to meet delivery obligations if the short call is exercised?
- If I am long an in-the-money call on a stock that goes ex-dividend tomorrow and I instruct my broker to exercise the call before the close today, will I receive the dividend? That is, are the shares credited to my account on the day the exercise is requested, or the next day? Similarly, what happens in the reverse case where I am short a call option and an option holder requests exercise on the day before the underlying goes ex-dividend?
- How many options expire unexercised? How many are exercised?
- I bought an index put option and just now have learned that it has a "European" exercise style. Does this mean I can not close my position until expiration?
- I'm long puts on a stock for which trading was recently halted. Can I still exercise my rights to sell the security?
Strategies
- What is the risk in selling a covered call at a strike price considerably higher than the stock?
- I sold and bought the same call. Is my naked call now covered?
- Can an individual person be both long and short the exact same option at the same time?
- Can I perform a spread by purchasing an at the money LEAPS® call, and selling a front month out of the money call?
- I understand that there are discrepancies in options pricing between puts and calls and among the different expirations...For how long do these discrepancies exist, and where can I learn more about them?
- What is the difference between a Call and a Put - and why does my broker tell me that I can't sell a Put when I'm long the stock?
- Do I need to hold my option until expiration when it turns profitable. If my option has increased in value but, still has time value, lets say two or three months, is it such a bad idea to close the position and collect a profit?
- What are the advantages of "vertical spreads"? And, are there any disadvantages?
- If I buy an in the money LEAPS® call and sell a shorter term call against it which is just out of the money - what happens if I get called? How do I settle the trade? Do I have to exercise the in the money LEAPS® call to get the stock and then deliver the stock to the party that exercised the option that I sold? Or is there an alternate way to settle the trade?
- I've read some options books where experienced and successful traders described a strategy of buying 'cheap' options and selling 'expensive' options. How can one go about determining whether or not an option is 'cheap' or 'expensive' and indeed, what does it mean?
- I recently read that a buy-write (i.e., buying stock and simultaneously writing a call option against that stock position) and selling a put are equivalent. I am having trouble visualizing this. Any help?
- Can you please provide an explanation of profit and loss diagrams for options? I am having difficulty interpreting their meaning.
- What is a long straddle?
- Please explain the Long Strangle strategy.
Option Price Behavior
- Why didn't my option move as much as the underlying stock?
- When an underling security (e.g. QQQQ) is up (e.g. +1.36), why do some call options actually fall in value for the day?
- I'm curious why when interest rates rise, option prices also rise? This seems odd since stock prices drop in this situation.
- I am a new investor and I'm interested in trading options. I have spent about six months studying chart patterns (Japanese candlesticks). My question is: What is the correlation between options and the candlesticks? Secondly, will it help me in option trading?
- Recently it seems that option prices have been out of line (with intrinsic value, underling security, etc.). Why?
- How does "deep-in-the-money" differ from just "In-the-money"?
- Can you explain Put/Call Parity?
Expiration
- What does the term "triple witching hour" mean?
- Why do options expire on the third Friday of the month?
- What happens to options expiration if it falls on a holiday, like in 2008?
Trade Entry & Execution
- I want to set a stop-loss order on my option position.
- Where can I find information about how orders are routed on the exchanges?
- Is it true that when executing buy-write orders, both are executed at the ASK price?
- Who sets the width between the bid-ask on the options exchanges?
- How does open interest affect my order? Should there be a certain amount of open interest to execute the trade? If not, what is open interest telling us? I have 8,500 shares of XYZ. If I were to write 85 contracts, do I get filled at the bid or ask?
- When I enter an order in volatile market conditions, does it make a difference what kind of order I enter?
Options Assignment
- How can I tell when I will be assigned?
- How could I be assigned if my covered calls are in-the-money?
- If I am short a call option and I buy back my short call, can I be assigned?
- I sold short 10 options contracts recently. Unfortunately, I was assigned early on each contract, one at a time. Couldn't all the contracts have been assigned at once?
- What time each day does the Clearing Firm receive information regarding assignments etc. from OCC?
- I recently wrote a call option. At the market close on expiration Friday, the option was 41 cents (.41) in-the-money. My broker told me that calls are "automatically" assigned when they are a certain amount in the money at expiration. Is there is a way that I can avoid being assigned?
- I wrote a slightly out-of-the-money covered call. The call has since moved in-the-money. Is there any way to avoid option assignment?
- If I 'buy to close' a short position, how can I be sure I will not be assigned?
- When I sell an option to open, is my only chance of being assigned (and being required to fulfill my obligations as the option writer) when the person or entity that bought from me decides to exercise?
- I'm short puts on a stock for which trading was recently halted. Am I still obligated to purchase the security if assigned?
LEAPS® & Cycles
- What are cycles and how are they affected when LEAPS® are listed?
- Where can I find information on LEAPS® options and various strategies based on LEAPS®?
- I recently attended a seminar where the instructor said that some brokers recognize LEAPS® securities as stocks and will allow writing of covered calls against LEAPS®, even in retirement accounts. I have searched since this time and have not found a broker that will allow this strategy in a retirement account. Do you have a suggestion?
- I own a number of LEAPS® options on a specific stock. From what I read in the press, the company is planning to spin off a significant portion of their corporation which obviously will reduce the price of their stock. Can you tell me how option contracts will be treated, if and when this spin off occurs? Will we be given LEAPS® for the new corporation or compensated in some other way for the reduced value of the options for what will amount to a smaller corporation with a lower stock price and consequently a lower value for its LEAPS®?
- When are the exchanges going to list 2014 LEAPS®?
- Where can I get a complete LEAPS® list?
- The exchanges used to list LEAPS earlier in the year. When did they change the procedures? And why do the exchanges list fewer LEAPS than in years past?
Splits, Mergers, Spinoffs & Bankruptcies
- What happens if I am short calls in the stock of a company which is subsequently taken over before the expiration date?
- What happens with my options contracts when a company is delisted from an options exchange?
- I was wondering if there is an industry standard to how options holdings are adjusted to reflect a stock split or stock dividend on the underlying security.
- How can I tell if an option contract has been adjusted?
- XYZ Inc.'s stock was recently trading at .60 cents before undergoing a 1 for 10 reverse stock split and is now trading at $6.00. Is my call option with a strike of $5 that was outstanding at the time of the reverse split now in-the-money by $1.00?
- How are options contracts adjusted for reverse stock splits?
- I own a September call option for company XYZ. News has come out stating that XYZ is the subject of a cash buyout that is expected to close in May. Assuming that the merger is approved, what can I expect to happen to the call option I own.
- Would options on MGM be adjusted? If someone is long call, does he/she have to exercise in order to get the dividend? What are the guidelines for the MGM dividend? How does cash distribution (other than the ordinary dividend) require an adjustment?
- If you write a covered call and the stock splits 2:1 - what happens to my 50 call if the stock price is 45?
- How have options been adjusted for the Microsoft special dividend?
- Now that AWE (AT&T Wireless) has been bought out, what happens to my 12.50 call?
- Sears, Roebuck and Co. and Kmart Holding Corporation recently signed a definitive merger agreement to form a new, combined Company. The merger is expected to become effective by the end of March 2005. The terms of the merger state that individual shareholders may elect to receive cash, an amount of stock in the new combined company, register no preference to receive cash or stock (non-electing) or if no election at all is made, shares are considered to be non-electing shares. How are options typically adjusted in the case of a merger where an election is involved?
- How are the exchanges going to adjust options on the ETF Nasdaq-100 QQQQ options to reflect the MSFT special dividend?
- Winn-Dixie Stores, Inc. recently declared Chapter 11 bankruptcy protection. What does that mean for my options?
- Has the non-electing consideration for Sears options been determined?
- What is the deliverable on an option when the underlying security is converted to the right to receive cash? (Like may be the case with Premcor's options that converted to the non-electing consideration.)
- What is the deliverable on an option when the underlying security is converted to the right to receive cash? (Which may be the case with Royal Dutch options if the RD shares are converted to a cash consideration.)
- A company I own options in recently declared Chapter 11 bankruptcy protection. What does that mean for my options?
- How are options typically adjusted in the case of a merger where an election is involved?
- How is an option contract adjusted for a tender offer or an exchange offer?
- Is there any anticipated option adjustment for the USG Rights offering?
- Where would I be able to read about the new adjustment methodology to eliminate rounding that is being implemented on September 4, 2007?
- Are there new procedures for adjusting option contracts in the case of a cash dividend?
- What happens to the options on an equity if that company files for bankruptcy? Do the options keep trading until expiration date?
Weekly Options
- Is it true that some exchanges are trading options series that expire weekly?
- Will Weekly options be listed every week?
- What is the last trading day for Equity and ETF Weekly options and how do they settle?
- What is the last trading day for Index Weekly options and how do they settle?
- How can one distinguish the Weekly from the Standard options?
- Will there be more Weekly options in the future?
- Are Weekly options subject to OCC's exercise-by-exception processing procedures?
- How can I find which Weekly options are trading?
Technical Information
- How do you measure volatility?
- Can you explain what the term "Zeta" means?
- What is happening when an option's premium seems to disappear?
- What is a put/call ratio and how is it used?
- Can you please help me understand what is the meaning of "skew" in options?
- What does the term "delta" mean?
- Where can I find option delta values on the internet?
- I tried to enter a limit order to buy an option for $3.15. My order was rejected due to entering an incorrect price. What was wrong with the price I entered?
- Are there any procedures in place for how options and strikes are listed?
- A few weeks ago, the only expiration months available for trading for Lucent Technologies options were January 2004 and January 2005. Now there are more available months. Why did they suddenly list more months?
- How is an equity options' opening price determined? Is it set by the market-maker or specialist prior to the market open? Is it based on the first trade of the day?
- Is there a list of optionable ETFs?