July 21, 2010
2 questions about options trading?
By Planet Wealth
My first question is whether day trading regulations apply to trading stocks options? Also, if the option is in the money, would it more viable (profitable and simple to sell) to exercise the call option or would it be better to sell the option itself? I question this question because I am concerned about option trading volume and how quickly one would be able to sell it.
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2 Responses to “2 questions about options trading?”
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July 21st, 2010 at 10:22 am
Day trading regulations do apply to stock and index options.
Also, day trading rules apply to small and long trades. So these are two examples of day trades:
1) Sell a covered call and buy it back the same day
2) Buy a place and sell it the same day.
It is nearly never worth exercising a call until very close to expiration because of the time value on the option. That means that to even consider exercising the call, you will have to hold the option until expiration, which is very risk because of the volatility. This is especially right if the option’s strike price is near the stock’s price. The only time I hold options that late is if I have a spread trade (buy 1, sell 1) or if I am hedged in some other way. So I would recommend selling the option at least two weeks before expiration. You can always roll to the next month if you want (sell June and buy July).
In terms of trading volume and liquidity concerns, this will be seen in the bid-question spread. A large spread indicates less liquidity. If you are daytrading options, I would recommend sticking to high- volume stocks and ETFs, with tighter spreads such as DJIA companies, SPY, XLF, etc.
Have you tried paper-trading (factoring in commissions)? If not, I reckon you will find out the hard way how quickly you can lose money by combining two option trading with daytrading.
July 21st, 2010 at 10:22 am
1) if you trade ( buy and sell) the same stock or option in the sameday that is a day trade ; and if you do this more than 3x in a 5 day period you may be considered a day trader and must have at least $10000 + in your acct. To avoid this I buy an option oneday, and then sell it the next day and even buy it back the same day and then it is not a day trade because selling and then buying back the same option(or stock)is not a day trade like buying and selling on the same day would be. 2) If your option is in the money you may excercise the option at any time you have the balance of the money for the stock(for calls) before expiration or you could just sell the call. But if the call volume is low and you could end up selling it for less than the right asking price of the stock at it’s peak . Remember to excercise your call option the fee is usually higher than just selling your calls. It is still all up to you and what kind of strategy you are into.