Rules to generally live by when trading options.
- Don’t buy right at market open, let the stock find its support and how it will trend for the day.
- Don’t buy the peak when a stock pushed through resistance. Buy off of support or a confirmed reversal to show an uptrend is coming.
- Best time to sell options from previously are right at open, especially when you see that large green candle.
- Start off with a small position such as 1-10 options, so if it drops from your entry point, you can average the cost down. You can always add more options on the way down and up.
- Don’t hold options for too long. You will regret a 50% loss or when Theta hits and they expire worthless and you can’t sell them.
- Generally stay away from options on stocks under $5. We have been burned by not being able to sell the options when you want to get rid of them due to low volume or small drop in a cheap stock under $5.
- Mind your Greeks as they provide a way to measure the sensitivity of an option’s price to various factors
- Theta: tells you how its price will change as time passes. The further out in time you go, the smaller the time decay will be for an option.
- Delta: measures the sensitivity of an option’s premium to a change in the price of the underlying asset and is the total amount the option price is expected to move based on a $1 change in the underlying security.
- Gamma: measures the rate of change in the delta for each one-point increase in the underlying asset. It is a valuable tool in helping you forecast changes in the delta of an option or an overall position.
- Vega: Vega measures the sensitivity of the price of an option to changes in volatility.
Read full explanation here: Using the "Greeks" to Understand Options
- Open Interest (OI) It’s one of the data fields on most option quote displays, along with bid price, ask price, volume, and implied volatility. Yet, many options traders ignore active contracts, which can lead to unforeseen consequences. One way to use open interest is to look at it relative to the volume of contracts traded. When the volume exceeds the existing open interest on a given day, it suggests that trading in that option was exceptionally high that day. Many Option Traders will tell you that knowledge of open interest can provide useful information about the market. For example, if there is a deceleration in open interest following a sustained move—either up or down—in price, then it might be foreshadowing an end to that trend. Options do have an impact on the stock price, but it is temporary and is mostly near the option expiry date. Options trading is like a game of Price is Right, mostly time-bound and involves guesswork. Do not jump into complex options games like gamma squeeze without understanding the risks.
In case anyone is new to options and or looking for ways to avoid the PDT with margin accounts that comes naturally with squeezes. I suggest using Webull. We ended up confirming 2 months back that you can use both settled AND unsettled cash for options without triggering a good faith violation.
Reasoning: Options are under T+1 policy (all funds settle within a day). Meaning regardless of using unsettled cash on Webull, it will settle the next day regardless. Do bare in mind that you can receive a GFV if you decide to intermingle shares in whichever way as T+2 makes you wait two days for money to settle.
The end result is that if you were to miraculously make 100% profit every trade, you can technically play the entire day without any repercussions. In a circumstance of IRNT, Webull would have been awesome for today or even Tuesday as there were several peaks to sell and dips to buy back in.
TL;DR - Webull Cash Accounts (FOR OPTIONS ONLY) lets you trade similarly to having 25K in Margin. The only difference being it’s only limited in the amount of profits/loses you make each day.
I always found the analogies about the greeks to be confusing and less than ideal. In physics, position can be represented as X(t). Velocity is the first derivative of that, dx/dt. Acceleration is the second derivative, d2 x/ dt2.
For options, the share price/value would be the equivalent of x. Delta would be the first derivative, which is measuring rate of change(velocity). Gamma is the second order derivative measuring the change in the rate of change(i.e. acceleration).
It works exactly the same in the field of options. I think looking at it this was is helpful to understand the relationship on a fundamental level.
I’ve been seeing a lot of talk about the settled vs unsettled funds over the last couple days which has led to some confusion, I think.
Some said the unlimited day trading thing only works if you’ve NEVER bought/sold a share since opening the account, while others said as long as you’re just dealing with options currently… you’re fine.
Are you able to confirm either way? Waiting for my deposit to settle so I can take advantage of day trades without PDT & want to make sure I don’t start off with a GFV lol
That’s what I heard too from chatter, but was unable to find any posts anywhere on the web.
I think was happens is like JB mentioned intermingling share trading (Shares settle T+2, options are T+1). If you sold both shares & options one day, it’s all one pool of unsettled funds and you have no way of knowing what portion of money will be used for future purchases. So you just have to wait the T+2 from the share sale for it all to be settled to avoid the GFV.
OK. That’s what I was assuming as well, just wasn’t sure if anyone had concrete confirmation. My funds finally cleared today (for options), so I should be able to confirm once way or another tomorrow. Thank you!