Options trading


(Matt) #1

As above - Robinhood offers it in the US. I use it on my Schwab account. Maybe a walk limit too for entry? I know freetrade is free but I’d be happy to pay to execute quickly if the UI was better than the competitors…


(Vladislav Kozub) #2

As per @Toby’s FAQ, options are in long term plans and are not discounted.

Potentially these could only be covered options for more healthy user experience?


(Matt) #3

Cool - didn’t know about that FAQ. I’ll take a look.

I’d hope for at least level 2 of this table:

http://help.sspro.schwab.com/4.18/Option_Approval_Levels.htm


#4

Hey everyone - that FAQ has actually just been updated and we’ve removed plans to introduce options from our roadmap.

Over the last couple of weeks, with much discussion of features that’ll most benefit our customers, we decided that options aren’t priority features right now.


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(Rob Sexton) #5

To expand on this, options are just another way of providing leverage, which as we’ve discussed previously in the context of margin accounts (Margin Blog) we don’t think are important in the context of investing (as opposed to trading).

We’d rather focus on features like limit orders, a feature that allows you to buy or sell at a given price when the market moves, which we think support our investing ethos, rather than selling you leveraged products which introduce short term opportunities for big gains, but at the cost of the option premium.


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(Vladislav Kozub) #6

I wonder what is exactly meant by leverage in this context? With options, you pay the money upfront and you incur no more losses going forward, you only exercise if you are in the money and ignore if you would encouter a loss, whereas with leverage you lose everything in case of a margin call you cannot cover. Is my assumption slipping at some point?


(Matt) #7

With some options you may incur no losses but they can be dangerous.

In the long term perhaps supporting LEAPs or covered calls would be an optimum balance between the YOLO culture and sensible investing.

For instance many of the options I buy are 6 months + and covered calls within the month.


(Tommy Lowe) #8

Who wants to volunteer to write an introduction to options then? :slight_smile:


(Matt) #9

Check this out - https://zerodha.com/varsity/module/option-theory/


(Vladislav Kozub) #10

You and @Cgwinning is so far the best authors so would be pleased to read!

I just want to understand the risk associated with normal options for which you pay upfront and that is it.

After all, options are great with volatile stocks like MU, BABA and TSLA as you can exercise them at any point in time until expiration, Just make sure you are in the money.


(Matt) #11

You don’t need to be in the money to exercise an option.

They have an expiry date and once they expire they’re worthless.

Generally the further out of the money (OTM) you are the more volatile and leveraged they are.
Further in the money (ITM) they are still be more leveraged than the stock but less volatile than being far OTM.

Options can be great across any stock that has volume. Many of my trades are not on stocks like AMD, MU etc.


(Vladislav Kozub) #12

I meanth that it would be most sensible to.

If I get a Put option for stock X for £5 with a strike price of £200 within 6 months but after 5 months the stock is worth £250 - I will simply let it expire. But if the stock is worth £150, then I will use it with a £45 gain. Reverse for Calls.

What I do not udnerstand, where exactly do you lose other than the actual cost of the option?


(Matt) #13

Ok so European options are different to US options - worth checking that out. Although there are more US style options around… so we will be dealing in dollars.

Check out the link I posted above as that will fill you in on the gaps.


(Dave Smith) #14

You do only lose the price of the option if it expires worthless, The leverage come in because the price of the option was less than buying the stock, so you could have bought more for the same money, but with the risk that you will lose the lot if it expires worthless

you can hedge your option by selling one as well or buying the opposite side to get some of the premium back, but this limits your upside and takes a bit of maths to get right :slight_smile:

there are various strategies you can use with options, you can bet on a big move without knowing if it will be up or down using a “straddle” strategy, something like that can be used just before a potentially market moving event such as the Brexit vote

You can also use a “Strangle” to bet on the market staying where it is


(Kenny Grant) #15

Really pleased to hear this.

I’d love to see things like limit orders prioritised over leveraged products or complex strategies like options. If you’re doing limit orders, it’d be nice to allow leaving open for longer than 99 days for those with longer time horizons (HL limits them to 99 days).


(Alex Sherwood) #17