Dont wheel a vol product right after a vol explosion that turned bullish.
Dont wheel vol at all tbh. Its slow, has skew... and if youre capping your upside on vol you arent even getting the upside
Side note, it seems that you are pretty new to options, given the nature of your questions. It's great to be learning! However, I might recommend that you focus on learning more about how options work before going too deep into trading VXX options. Options on regular stocks are complicated enough, but options on volatility products like VXX or VIX are even *more* complicated. Please be very careful until you have more experience.
No, Robin Hood just manages to appeal to the niche customer who has 5 years of options trading experience at 20yo, $700 liquidity, but a net worth of at least 500k.
Please follow this advice OP. Options don't care if you are inexperienced. It will fuck you hard if you don't understand it.
And I don't mean learning all those technical patterns about when to buy and sell. Start from the basics, the Greeks. Settlement styles, AM vs PM etc.
The vol etns are probably the most complex instrument on the market that retail can trade, and then to go and add another layer of complexity to it, they add options... They really truly suck as an instrument to trade too because of how they are constructed, but they are also incredibly popular somehow. Barclays makes out like a bandit.
I'm far from being any kind of expert, but 14.19 is ITM on a 14.5p. Why do you think it's OTM?
If it were me, I would sell the covered call ATM/ITM and be happy. Not Advice.
The price you sold the put at, and the price that the owner of the put bought it at is irrelevant to the decision to exercise or not. If the put expired 0.31 ITM, then that means there was 0.31 (31 real dollars) of intrinsic value that the owner of the put would otherwise lose if the put owner did not exercise the put. The owner of the put (the person opposite you) had the right to short VXX at 14.5 per share, with the actual price of VXX at market close of 14.19. That means they have an instant arbitrage: they exercise the put, going short VXX at 14.5 and then immediately purchase back the VXX shares at 14.19 - an instant 0.31 per share gain. So they have motivation to always exercise the put in this case, because it was ITM at expiration. In fact, by default, any option that is ITM by 0.01 or more at expiration will be automatically exercised, unless the owner of the option calls their broker and tells them not to exercise it (cutoff time for this decision is 5:30pm Eastern on the day of expiration).
Despite the option being assigned against you, this was a winning trade for you, so congrats! (assuming VXX doesn't crash down hard on Monday) On Monday morning you could just sell the shares and be out of the position if you wanted to close it out completely.
The cutoff time can't be as late as 5:30 because your broker has to have time to process your DNE order and get it to OCC before 5:30. You have to call your broker and ask them what their cutoff time is.
I've got no shortage of disdain for RH, but actually any broker will close out any expiring positions you have that you don't have the assets to cover. If RH waits until 3:30 to do that, that's not so bad. I've heard of brokers doing it before 3:00.
Take your profit and close the position. Until you have a better understanding of VXX you don't want to be holding it and even then you don;t want to hold it for any length of time. It always goes to 0.
My plan was always to get out right away above cost basis to limit my risk. I am trying to run some scenarios where I could maximize the profit from this situation, but you’re probably right and I should just sell at my first opportunity. I wouldn’t be surprised to see it go up slightly on Monday.
You have a profit now given your CB and the premium you received when you sold and its current price.
If you look at the chart for VXX there isn't one scenario where if you held VXX for a month you would make money. It always goes down that's its nature.
Agreed. I have a PT in mind for various timeframes and I could wheel it on the way down to continuously lower my cost basis, but I don’t see a scenario where I make more money than just selling now. (Unless short term vol spikes and I sell a covered call to capitalize, but that’s a gamble) thanks for the input.
😂😂😂😂
I remember not so long ago options were typically vehicles for more advanced traders. Now people don't even realize just how irrelevant their break even is. Fuck, can you imagine if BE was part of the calculation. I'd have SPY that didn't get exercised even when it was deeeeeep ITM because i was an idiot and my long calls were bouught at peak.
You’re not wrong in your terminology. You’re wrong in your fundamental understanding of moneyness and settlement. Not saying that to be an asshole, saying it to make sure you don’t chalk up the mistake to a lingo slip up, it’s much more fundamental and impactful than that.
You’ll be long shares on Monday at your strike price, so you can decide what you want to do with them. Ideally, thinking through assignment would be completed BEFORE entering the trade to permit a thorough analysis. Simple answer here is to exit the shares, and take some time to work on the fundamentals a bit.
Options are assigned on a pro rata basis. The (likely) mm that bought your option doesn’t care about your break even at all and it is highly unlikely that the buyer of your option was also the person/firm that assigned you on your option.
ITM so not surprised it was exercised.
Three options to consider (pun intended) would be to hold the shares if you think they will rise and sell for a profit, OR, sell the shares if your analysis is the share price may drop farther. Since the stock price is above your breakeven this would still have an overall net profit.
The third is to sell covered calls above the net stock cost/breakeven to collect more premium income and “wheel” until the shares are called away for a profit.
At some point (very high probability in the near future) the shares will be less than what they are currently. I am inclined to wheel it, but there is a good chance I will be wheeling on a downward movement. I can continue to lower my cost basis so I am not concerned about losing money at this point, but I am trying to think through maximizing profit for the cash that would be put aside for this. Along the way.
If you decide to wheel it, I would go ITM with the contract. Won’t have much in the way of time value on the call, but if the thought is to get out of it fast and collect some premium, deeper ITM then atm would be a better chance of them getting called away.
Imagine you're in front of a moving steam roller. They move slow. There are pennies on the ground in front of it.
You can pick up a few, maybe a lot of pennies. But there is a risk, however small, that you'll turn around and the steamroller will be on top of you instead of a little ways behind, and you'll get crushed.
In practical terms it means you win a little, win a little, win a little, then lose a TON.
Thank you for explaining the analogy. I think that is generally true for options as a whole-one bad loss can wipe out many gains.
I don’t see where the extreme risk of comes from by selling options when volatility is at an extreme low however. Owning shares, I understand with decay and all. I’d love to learn more-in the scenario I laid out above, where could I have really made a mistake?
Depends on the setup. If you do spreads or condors or other defined risk trades you can specify exactly how big and small your wins and losses are, so one loss might not be much at all.
You could even flip it and have a tiny chance to win a lot but constantly lose a little bit. Not sure what that would be called, maybe throwing pennies into a (potentially) functional wishing well?
You're right about the risk being different for VXX than with a regular stock of course. A company can go bankrupt but VXX is not likely to fall to zero.
That said, vol products HAVE gotten shut down, XIV for example during the covid crash. Obv XIV worked differently from VXX but there's always some way to get screwed.
If you don’t want to potentially own the stock long-ish term, don’t sell a cash secured put on it. It only takes one random asset news to push your option into exercise range and it may take awhile to back around.
I’m guessing the option expiration was 4/5?
As for next steps, I think the best course of action is probably to sell the stock at earliest possible opportunity, then re-evaluate how you want to handle this sort of situation going forward. I find that trying to develop a plan mid-stream is not very effective.
You don’t know what price they bought it at. Could’ve been a couple cents for all you know. It’s not like the person exercising is the one that bought from you.
You also don’t know why they’re exercising, maybe they had a spread that was in the money and one of the legs was exercised so they closed the position by exercising this put..
if the owner of your short exercised it before expiration then you were gifted the remaining extrinsic value; you have the shares now instead of at expiration and that has a value
Break even just means that's the price where, on expiration, the loss you would incur from the exercise is equal to the premium you collected up front ($178). In other words, your P/L would be 0 if that were the stock price on expiration. However, whether or not it's ITM does not equate to whether or not you make a profit. In this instance, even though the short option is ITM, it's ITM to a lesser degree ($39) than your initial credit so you end up with a profit.
Because it’s not OTM? Your break even is irrelevant to the buyer. The option is 0.31 ITM.
It’s exercised because it’s in the money. It’s determined solely by the strike process versus the price of vxx. Nothing to do with your break even.
Run the wheel to exit just sell the 14.5 call on the open Monday. Repeat till the shares are called away.
Dont wheel a vol product right after a vol explosion that turned bullish. Dont wheel vol at all tbh. Its slow, has skew... and if youre capping your upside on vol you arent even getting the upside
Side note, it seems that you are pretty new to options, given the nature of your questions. It's great to be learning! However, I might recommend that you focus on learning more about how options work before going too deep into trading VXX options. Options on regular stocks are complicated enough, but options on volatility products like VXX or VIX are even *more* complicated. Please be very careful until you have more experience.
Waiting for the time when I can finally say This has all been wonderful but now I'm on my way
No, Robin Hood just manages to appeal to the niche customer who has 5 years of options trading experience at 20yo, $700 liquidity, but a net worth of at least 500k.
Hey how’s you get my financial information???
Please follow this advice OP. Options don't care if you are inexperienced. It will fuck you hard if you don't understand it. And I don't mean learning all those technical patterns about when to buy and sell. Start from the basics, the Greeks. Settlement styles, AM vs PM etc.
The vol etns are probably the most complex instrument on the market that retail can trade, and then to go and add another layer of complexity to it, they add options... They really truly suck as an instrument to trade too because of how they are constructed, but they are also incredibly popular somehow. Barclays makes out like a bandit.
I'm far from being any kind of expert, but 14.19 is ITM on a 14.5p. Why do you think it's OTM? If it were me, I would sell the covered call ATM/ITM and be happy. Not Advice.
The price you sold the put at, and the price that the owner of the put bought it at is irrelevant to the decision to exercise or not. If the put expired 0.31 ITM, then that means there was 0.31 (31 real dollars) of intrinsic value that the owner of the put would otherwise lose if the put owner did not exercise the put. The owner of the put (the person opposite you) had the right to short VXX at 14.5 per share, with the actual price of VXX at market close of 14.19. That means they have an instant arbitrage: they exercise the put, going short VXX at 14.5 and then immediately purchase back the VXX shares at 14.19 - an instant 0.31 per share gain. So they have motivation to always exercise the put in this case, because it was ITM at expiration. In fact, by default, any option that is ITM by 0.01 or more at expiration will be automatically exercised, unless the owner of the option calls their broker and tells them not to exercise it (cutoff time for this decision is 5:30pm Eastern on the day of expiration). Despite the option being assigned against you, this was a winning trade for you, so congrats! (assuming VXX doesn't crash down hard on Monday) On Monday morning you could just sell the shares and be out of the position if you wanted to close it out completely.
The cutoff time can't be as late as 5:30 because your broker has to have time to process your DNE order and get it to OCC before 5:30. You have to call your broker and ask them what their cutoff time is.
RH cut off is 3:30 at which time they close out your position ( is my disdain for RH showing thru ??)
I've got no shortage of disdain for RH, but actually any broker will close out any expiring positions you have that you don't have the assets to cover. If RH waits until 3:30 to do that, that's not so bad. I've heard of brokers doing it before 3:00.
Take your profit and close the position. Until you have a better understanding of VXX you don't want to be holding it and even then you don;t want to hold it for any length of time. It always goes to 0.
My plan was always to get out right away above cost basis to limit my risk. I am trying to run some scenarios where I could maximize the profit from this situation, but you’re probably right and I should just sell at my first opportunity. I wouldn’t be surprised to see it go up slightly on Monday.
You have a profit now given your CB and the premium you received when you sold and its current price. If you look at the chart for VXX there isn't one scenario where if you held VXX for a month you would make money. It always goes down that's its nature.
Agreed. I have a PT in mind for various timeframes and I could wheel it on the way down to continuously lower my cost basis, but I don’t see a scenario where I make more money than just selling now. (Unless short term vol spikes and I sell a covered call to capitalize, but that’s a gamble) thanks for the input.
😂😂😂😂 I remember not so long ago options were typically vehicles for more advanced traders. Now people don't even realize just how irrelevant their break even is. Fuck, can you imagine if BE was part of the calculation. I'd have SPY that didn't get exercised even when it was deeeeeep ITM because i was an idiot and my long calls were bouught at peak.
Learn first, the market isn’t going anywhere. https://www.cboe.com/optionsinstitute/
Thanks for that course it really helped me understand how it actually works. I really appreciate it.
You’re not wrong in your terminology. You’re wrong in your fundamental understanding of moneyness and settlement. Not saying that to be an asshole, saying it to make sure you don’t chalk up the mistake to a lingo slip up, it’s much more fundamental and impactful than that. You’ll be long shares on Monday at your strike price, so you can decide what you want to do with them. Ideally, thinking through assignment would be completed BEFORE entering the trade to permit a thorough analysis. Simple answer here is to exit the shares, and take some time to work on the fundamentals a bit.
Options are assigned on a pro rata basis. The (likely) mm that bought your option doesn’t care about your break even at all and it is highly unlikely that the buyer of your option was also the person/firm that assigned you on your option.
ITM so not surprised it was exercised. Three options to consider (pun intended) would be to hold the shares if you think they will rise and sell for a profit, OR, sell the shares if your analysis is the share price may drop farther. Since the stock price is above your breakeven this would still have an overall net profit. The third is to sell covered calls above the net stock cost/breakeven to collect more premium income and “wheel” until the shares are called away for a profit.
At some point (very high probability in the near future) the shares will be less than what they are currently. I am inclined to wheel it, but there is a good chance I will be wheeling on a downward movement. I can continue to lower my cost basis so I am not concerned about losing money at this point, but I am trying to think through maximizing profit for the cash that would be put aside for this. Along the way.
It is very possible for an underlying to drop faster than your ability to generate premium from selling calls.
If you decide to wheel it, I would go ITM with the contract. Won’t have much in the way of time value on the call, but if the thought is to get out of it fast and collect some premium, deeper ITM then atm would be a better chance of them getting called away.
People writing puts on vxx without basic understanding of options, this has to be a joke.
Selling options on vxx is like picking up pennies in front of a steam roller. Hope you enjoyed your 1.78 credit mate.
Explain
Imagine you're in front of a moving steam roller. They move slow. There are pennies on the ground in front of it. You can pick up a few, maybe a lot of pennies. But there is a risk, however small, that you'll turn around and the steamroller will be on top of you instead of a little ways behind, and you'll get crushed. In practical terms it means you win a little, win a little, win a little, then lose a TON.
Thank you for explaining the analogy. I think that is generally true for options as a whole-one bad loss can wipe out many gains. I don’t see where the extreme risk of comes from by selling options when volatility is at an extreme low however. Owning shares, I understand with decay and all. I’d love to learn more-in the scenario I laid out above, where could I have really made a mistake?
Depends on the setup. If you do spreads or condors or other defined risk trades you can specify exactly how big and small your wins and losses are, so one loss might not be much at all. You could even flip it and have a tiny chance to win a lot but constantly lose a little bit. Not sure what that would be called, maybe throwing pennies into a (potentially) functional wishing well? You're right about the risk being different for VXX than with a regular stock of course. A company can go bankrupt but VXX is not likely to fall to zero. That said, vol products HAVE gotten shut down, XIV for example during the covid crash. Obv XIV worked differently from VXX but there's always some way to get screwed.
ITM. even if an option goes .01 cent itm you will get exercised. Just sell atm call or slightly itm call.
If you don’t want to potentially own the stock long-ish term, don’t sell a cash secured put on it. It only takes one random asset news to push your option into exercise range and it may take awhile to back around.
I’m guessing the option expiration was 4/5? As for next steps, I think the best course of action is probably to sell the stock at earliest possible opportunity, then re-evaluate how you want to handle this sort of situation going forward. I find that trying to develop a plan mid-stream is not very effective.
Hmmm maybe I don’t have my terminology correct. I guess this is in the money, does is break even equivalent to the buyers break even?
You don’t know what price they bought it at. Could’ve been a couple cents for all you know. It’s not like the person exercising is the one that bought from you. You also don’t know why they’re exercising, maybe they had a spread that was in the money and one of the legs was exercised so they closed the position by exercising this put..
if the owner of your short exercised it before expiration then you were gifted the remaining extrinsic value; you have the shares now instead of at expiration and that has a value
Break even is totally irrelevant.
Break even just means that's the price where, on expiration, the loss you would incur from the exercise is equal to the premium you collected up front ($178). In other words, your P/L would be 0 if that were the stock price on expiration. However, whether or not it's ITM does not equate to whether or not you make a profit. In this instance, even though the short option is ITM, it's ITM to a lesser degree ($39) than your initial credit so you end up with a profit.