A question I get asked quite often is – “How Much Is This Option Worth?” Its not hard to find out this information, as your trading platform should provide this information to you .
You can use this information for gaps up and gaps down. As options, do not trade in the "Pre-Market" You need to know what the delta is for your strike price, here is a simple calculation. In the above example AAPL, was trading late after the announcement of the next IPhone.
Delta: 0.77 ( Delta tells you how much the option will move with a dollar move in the underlying Stock or Index)
Multiply
Point Value Move of the Underlying Stock or Index: 9
Current Market Price
Entry Price: 6
Add
Looks like this
9 x .77 = 6.93 + 6 = 12.93 Gap Up (round to the near number = 12.90 exit price of better). Also, the reverse would be to subtract, if AAPL continued in a decline.
Quite simply, the delta represents the change in dollar value of the option as AAPL stock or index moves up or down $1.00. Remember, the delta is based on a $1.00 stock or index movement. If AAPL or index had increase only $.50, the delta is cut in half.
So, as of late, retail traders have been experiencing system outages, from there Online brokerage firms. We personally have experienced two occasions with two different Online brokerage firms we deal with. And luckily they have been on two different days and times.
As a Retail Trader, your business is depends on the continued reliability of the Internet infrastructure. We receive and process trade orders through a variety of electronic channels. Our online trading services are heavily dependent on the integrity of the systems supporting them.
However, you ever read your brokerage statement on the it's Internet Infrastructure?
Standard Practice Statement in an Online Brokerage Agreement.
Well.
“Our disaster recovery planning cannot account for all eventualities. In addition, extraordinary trading volumes could cause our computer systems to operate at an unacceptably low speed or even fail. While we have invested significant amounts to upgrade the reliability and scalability of our systems, there can be no assurance that our systems will be sufficient to handle such extraordinary trading volumes”.
This what we do, how are you going to tell us your systems are unable to handle “extraordinary trading volumes.”
“Our systems and operations, including our Web servers, and those of our third-party service providers are vulnerable to damage or interruption from human error, sabotage, encryption failures, break-ins, intentional acts of vandalism, earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems and operations, and similar events”.
Sure there are natural causes, with a grain of salt, as well
Moreover,
Internet infrastructure may be unable to support the demands placed on it if the number of Internet users continues to increase, or if existing or future Internet users access the Internet more often or increase their bandwidth requirements. In addition, viruses, worms and similar programs may harm the performance of the Internet.
The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage and our business could be materially adversely affected.
This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable Internet services.
Financial Losses are not an option in our business, sure you can have a backup plan for a Earthquakes, Floods, Fires. Where is the Nearest Brokerage Office? But, “Unable to handle “extraordinary trading volumes.” WTF!!
Remember, for every option trade there is a buyer and a seller, so if you are short an option, there is someone out there who is long that option and who could exercise.
Major Key thing to remember is that, on expiration, brokerage firms will automatically exercise any equity option that is $0.01 or more in-the-money.
Options exercise takes place officially on Saturday night.
What this means is that your options will be converted into shares and you will become a proud stock owner!
You can be potentially obligated to outlay a lot of money to buy stock. Specifically, trading 10 contracts (1 contract is worth 100 underlying shares of stock). So you would be obligated to buy 10 x 100 = 1,000 at (the strike price).
That comes out to a whopping outlay of cash!
Major Key: Close them out.
