Let’s discuss, ask questions, share experiences and knowledge about options and their use as part of stock investing.
Warren Buffett has said that options are weapons of mass destruction for stock investors, is that true, or can they be useful?
To start, a link to the ABCs…
I’d like to remind you that this “thing” you quoted is bot-generated from option trading flow. So “unusual” in this case doesn’t mean that some human considered it strange. It might be exceptional by some metric, but all sorts of strange things happen in option pooling because often there’s more than one trade – meaning that while this particular option alone might not look sensible, it could be paired with another opposing trade, and these two together form a pattern where a certain kind of price movement brings money.
Without knowing what the option premium was, i.e., what one had to pay for such an option at that moment, it’s impossible to evaluate anything. Nobody gives away a contract (CALL option) for free that allows the buyer to purchase Nokia for four dollars if the current price is well over 4.50 dollars. What I understand from this is that someone has bought an option to buy Nokia shares for four dollars next week. And someone has sold such an option, presumably asking for more than the difference between the current share price and four dollars. If the share price rises, the deal becomes favorable for the option buyer, meaning the buyer expects Nokia’s price to rise. (premium paid + $4 < expected share price 10/16)
If the share, on the other hand, falls, the deal worsens. Whether it’s worth exercising the option depends on the extent of the fall – the premium has been paid in any case, whether it’s used or not. If you can get Nokia from the market for under four dollars next week, there’s no point in using the option.
Smarter people can correct me if I understood something wrong.
Pretty good comment. Unusual activity requires that the demand for options with that strike and exp date grows significantly more than the normal demand for options on that stock. So it’s true that it has reached quite far, but the volume of a single trade is 451, which is nothing. It would have been necessary to see what the total volume was and how many large Call trades there were.
Options trading is very much a big gamble, the further out they extend. Sellers expect to profit and buyers rely on their own view. Options can change hands many times after issuance, and the closer to the expiry date, the wilder the movements become. A market maker (MM) typically hedges by issuing Calls or Puts, targeting a certain portion of their holdings. Any stock owner can, if they wish, sell options against their own shares.
Somewhere it was said that volume is number x 100, so in that example it would be
45100, which is still not much.
Should it be read like that?
Yes, 1 option corresponds to 100 shares.
https://www.barchart.com/stocks/quotes/NOK|20201016|4.00C/overview
Open Interest 16,734
Volume 3,990
0.09 Day High 0.17
Beta 0.64
What can be concluded from this if NOK is priced at, for example, $4.80 USD on October 16th?
That is, how much would 1000 of these example Nokia options cost today, and what would their value be next Friday if the share price is $4.80?
Can anyone tell me?
Can’t know because it’s not known how much the option premium was.
stock price moved down to $4.64.
Is the premium the stock price?
Hey. This thing you pasted says someone bought options with a strike price of $4, meaning they made a deal to buy 45,100 shares of Nokia at four dollars on October 16th.
Since no one is so stupid as to give such a contract for free, something was paid for it. Presumably more than the current stock price and the four-dollar price difference.
If the price is below four dollars at that time, this option is worthless.
If the price is over four dollars, but below the stock price at the time of purchase of the option, part of the premium will be lost.
If the price is over four dollars + the premium paid, there will be a profit.
Without knowing what was paid for the option, one cannot know anything about the profitability of the trade. Also, note that the same person may have multiple trades. Read this as a start, for example:
https://www.investopedia.com/trading/options-strategies/
Actually, the only thing you can say from your paste is “someone bet that Nokia’s stock price will rise.”
A call buyer profits when the underlying asset increases in price.
So, if you bought that option today when the share price was around $4.10, and next Friday when the option expires the
price is $4.80,
then you can sell the options at a profit or take the number of shares those options entitle you to by paying the strike price of $4 per share??
Yes, if the course rises, the value of the CALL option rises. The exact profit/loss depends on things that cannot be seen from that.
Thanks!
…that made things clear.
Hey,
What platform do you use for options trading? I’m having trouble finding a good platform. Nordnet’s options offerings are limited to Scandinavia and prices are high. Degiro has better prices and European options, but not many US options, and all the Greek letters are missing. Has anyone found a good platform with lots of tradable options, the Greek letters, and reasonable pricing? I haven’t seen any discussion about this anywhere?
Henri
Mandatum to enter the main market. 3 usd option
You can trade options on the US markets with Interactive Brokers. Cheaper brokerage fees than with Mandatum, but you have to send a report to the tax authorities once a year.
Are losses in US options tax deductible for individuals? I recall reading somewhere that you’d need to be a company for trading these to make losses tax deductible?
For tax purposes, the following are also considered equivalent to capital losses (Income Tax Act, Section 50(3)):
Options for which a loss resulting from their expiration is equated with a capital loss are defined in Income Tax Act, Section 50(3) (= options traded on a regulated market as defined in the Act on Trading in Financial Instruments). If an option not defined in the provision expires, the resulting loss cannot be considered a capital loss.
Furthermore, the provisions concerning capital losses do not apply to losses resulting from future contracts not traded on a regulated market. A loss arising from such another future contract is not deductible as a capital loss or as an expense incurred in acquiring or maintaining income (Supreme Administrative Court 1995 B 522).
Losses arising from CFD (Contract for Difference) agreements are not tax-deductible under Income Tax Act, Section 50 (Supreme Administrative Court 2010:74).
The law does not seem to take a stance on where the options are located, as long as they have been traded on “regulated markets”.
I have options for a company that is not currently publicly traded but is likely to go public in x years. It’s very likely the company will be listed before my options expire. The current valuation of the shares is estimated to be about 3x higher than the price of my options. So, it clearly makes sense to exercise the options sooner or later (assuming that the share price will “never” crash below the option value).
My question is, should I exercise my options now/before the company goes public, or does it practically matter? I’m mainly thinking about the practical implications, for example, for a possible stock split before exercising the options - would the options split accordingly? What if a competitor buys the company (part or all of the shares) - can/should the options be exercised in connection with a possible acquisition? The possible acquisition cost presumption and the 10-year period will probably be calculated from the moment the shares are exercised, not from the moment the options were received?
So, if we assume that the options should definitely be exercised at some point and I will do so, is it worth it or does it matter whether I exercise them now or, say, a day before I plan to realize them (sometime in the future)?
Practically all your questions are answered in the option terms, which can be all kinds. Likewise, a significant factor is whether, for example, dividends paid during the running period affect the option’s exercise price. That’s such a complicated matter that answering anything definitive would likely be wrong.
I’ve also recently become interested in options trading. The Finnish equivalents of these terms are tricky, but especially selling a put option (selling put). This means I’m willing to buy the stock at a certain price, regardless of how much it might fall.
What platform do others use for trading these? Mandatum and Interactive Brokers were mentioned. So, these are tried and tested? Indeed, Nordnet had quite limited options (at least internationally).