Just wanted to take a look at how contracts work so I just bought 1 contract UBER $26.0 PUT 5/1 My break even price is 25.57. So what are my options at this moment? p.s. I am using robinhood app and i find the ui terrible. #investments #personalfinance
On 5/1 if Uber closes below 26 then you make money by having some one buy each Uber share at 26. If the share price holds above 26 your option is worth 0 on expiry date(5/1). Buying a put is like insuring your portfolio. It will come handy in case of a disaster(when price drops below the option strike price)
But people play it like roulette and end up on the streets
Do the options exercise automatically on the day of expiry if you're still holding onto them?
so on 5/1 is it executed automatically?
Depends on the broker.
Yes. Any time after 5/1 16:00 est
Exercising the option isn't the only way to make money on it - you can also sell the option prior to expiration to close your position.
What’s your delta? If you’re scared of losing more, buy UBER shares equal to your negative delta of your put option. For example, if your put is at the money, -50 delta, buy 50 shares to prevent loss. If your put is in the money, BUY SHARES NOW!!!!!
I am not there yet, this is 101. Delta says -0.22.
If you delta is -22, then buying 22 shares of UBER would lock in your PNL. Meaning if UBER goes up, you won’t lose money, if UBER goes down, you won’t lose money. This is because -22 delta + 22 delta shares = 0. Your delta is 0, your risk is 0, mathematically you can’t lost money for now.
You can't lose more money than the invested capital when you buy an option, only when you sell (write) an option. If the price does not go below the strike price, it will just expire worthless and that's it. You don't make money either if the price does not go below the strike price minus the premium you paid when you bought the option.
what if before 5/1 the price drops let's say $15 and you want to cash out. Do you sell the contract or is there a way to sell the stocks at the strike price?
Yeah but the app only shows buy/sell options for the contract. may be is it because i am not in the money yet?
I sold the contract for $52. I will look into Delta in detail. Thanks for the comments.
Uber is 28 today, so you need a ~16% drop in one week to have profit. The odd is reasonable. If the amount is not a lot, I would just hold it. Playing near term option is like betting. Control the size of the bet. As long as you win 1 in 3 or 4 times, you will have reasonable profit long term
How often do you have to monitor? Sounds like a headache lol
Usually once a week. But I am trading daily these days, the market is very violitile
Oh you bought a put eh. How down are you? It’ll likely get worse.