Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: freeus who wrote (70808)	10/9/1998 3:38:00 AM
From: nihil	Read Replies (1) \| Respond to of 176387

RE: Option Expiration and Bid-Ask Spread If a call option is in the money close to expiration (third Friday of month), you must sell it to a market maker or exercise it. You make your choice by your broker's exercise notice time (usually 3 or 4 pm) or earlier. Usually on Friday afternoon there is no time premium left, Bid-Ask spreads are very tight, and you may sell at the market with little risk. It still pays to get the current B & A quotation before selling. If you instruct you broker to exercise he will receive the appropriate number of shares from the OCC and add them to your account retroactively, charging the highest possible commission that he can think off. Find out what commission he will charge before exercising. Sometimes the broker will automatically exercise in any the money call (e*trade does). I had the delectable pleasure last October of waking up Monday in October of discovering I had bought 1000 shares of INTC at 80 and sold 1000 shares of INTC short at 85. The margin took care of itself. Waterhouse, however, gets very disturbed unless you have the maximum needed margin in your account, so they pester me until until I close out my in-the-money spreads by exercise a sale. You can sell a spread as a spread for a specified credit, or leg out and try to clip the bid-ask spread. I would make sure you know what your broker will do if left alone (it should be in your agreement), and make sure that you don't have in in the money options expire without getting something out of it. Sometimes it's weird. There are tales of people thinking a call expires valueless (say an 80 with the stock closing on Friday at 79) only to discover that they have been exercised (at random by a autoexercising broker) and then wake up to a gap down opening on Monday morning. A favorite date for the Monday is Oct 17, 1987. Might seem silly and expensive, but the ultracautious close out at the last minute out-of-the-money options less than a few percent from the price for a 1/16th or so. They are very cheap a few minutes before expiry. As to shaving the Bid-Ask on options I think it is mandatory if you are going to trade options at all. The bid-ask spreads are often wide (1 whole point for Leaps is common). There is no need to beat the Bid or Ask very much -- 1/8 will do for options over $3 and 1/16 for those under $3. If you are a teeny over the bid on the real time quote you become the bid. The open order quote should show your price the same as the bid after you make the bid. If this doesn't happen, copy the appropriate pages and send them to the SEC. As the bid, you expect to get some or all of the next buy at the market. Sometimes a MM will nip down and sell to balance his book. As soon as the transaction occurs your open order will turn into an execution. It may take hours. Sometimes the underlying price will change enough that you need to change your order. After you get good at this, you can walk your spreads up and down. Legging out on the short-calls, buying them back cheap, and then selling the long calls after a rise (or selling the net strike up short. I think the secret of options is to set a target and to take profits when that target is reached. Close to expiration options are very nervous making. November is to close for me. If you have real faith in Dell, go out to 2001, pick an out-of-the money call, -- say January 60 LDEAL and put in some bids for at 15 3/4 for 5 contracts; once you have those at some such price, sell the 65 call LDEAM at 5 contracts at 14 7/8. To buy this at a debit of 7/8's. If you wish, you can ask you broke to buy you the spread at a debit of 7/8. This is a very greedy deal and will not be trivial to pull off, but if you succeed, you stand to make a return of $2,500 for a possible loss of $437.50 plus commissions (2 in and 2 out) -- $525 dollars. If the price of Dell is over $65/sh January 21, 2001 you will have hit a four-bagger! If it finishes at $61 you will break even (disregarding the interest lost on your investment). Plus, no reason to get nervous for a couple of years. You could so deep in the money that you could cash out within a year.