Sanrith Descartes
You have insufficient privileges to reply here.
- 47,085
- 132,924
Investing General Discussion
- Thread starter Furious
- Start date
MachRed
Molten Core Raider
- 185
- 449
Looking to better understand options and have a question. Take for example the below.
From WSB, guy does a buy to open put on UNH expiring today. UNH tanks the last few days, getting closer to his strike so option goes higher in value. How can he realize this 8400% gain if UNH closes above $270? Isn't the option basically worthless if UNH doesnt go below thr strike?
I think what I'm not understaning is closing positions before they expire. As the buyer of the option he can sell the option for the gain? What happens if you are selling the option, can you also close out the option before expiration?
From WSB, guy does a buy to open put on UNH expiring today. UNH tanks the last few days, getting closer to his strike so option goes higher in value. How can he realize this 8400% gain if UNH closes above $270? Isn't the option basically worthless if UNH doesnt go below thr strike?
I think what I'm not understaning is closing positions before they expire. As the buyer of the option he can sell the option for the gain? What happens if you are selling the option, can you also close out the option before expiration?
Last edited:
Fogel
Mr. Poopybutthole
- 14,154
- 57,821
You can close out an option at any time before expiration if you're both buying or selling, the only question then would be at what premium. The closer you get to expiration the faster decay happens so you have to move fast on expiry days.
Sanrith Descartes
You have insufficient privileges to reply here.
- 47,085
- 132,924
"Many" (cant quantify it) options players dont actually want the shares. They are trading the value of the option contract. As to how options contracts are valued, it isn't a simple answer. Go here for a detailed primer on options 101...
Everything Options
Options can be a powerful tool to add to your investing/trading toolkit. They can dramatically increase your risk or they can mitigate it and everything in between. This thread is for discussing options plays, options education and questions. I have been trading options for about 20 yrs now...
Sanrith Descartes
You have insufficient privileges to reply here.
- 47,085
- 132,924
MachRed
Molten Core Raider
- 185
- 449
Got it, you're basically just closing out the option and pocketing the change in premium based on what Sanrith linked. I wasn't familiar with the idea of closing out options before they expire.
- 1
Fogel
Mr. Poopybutthole
- 14,154
- 57,821
Correct, as Sanrith pointed out, very few people trade options with the mind set of being assigned the shares and will either sell at a certain premium/profit margin or feel comfortable enough that the contracts will expire in the case of selling puts in which case they pocket all the premium.
Rangoth
Blackwing Lair Raider
- 1,993
- 2,110
It's gambling, but think about it like a % chance of something.
Non-Market example:
You and I make a bet that man will land on Mars before the year 2100. Or that team X will win the world series in 2030! Well those dates are a long way off and it's entirely possible that those could happen. Advances in technology for the Mars thing and team X could draft/trade for amazing players! So this bet will cost me 1000$ because there is a high chance it could happen and a lot of time to see what may occur.
Using the Mars example, we come up with an amazing new rocket or launch system in the year 2050, we build a space base and create artificial gravity in 2060....well now things are looking really positive we will get to Mars because look at our advances. My 1000$ bet is now worth 50,000$ because at the current rate it is almost a guarantee that we'll get there. I "sell" my bet to someone else to get my profit, and the person buying it think it will go from 50,000$ to 100,000$ so he's in too!
Using the sports team winning in 2030 example, let's say it's now 2029. They have lost the last 3 years, their best player got injured and they have crappy picks in the 2030 draft. Well shit, things are not looking good for them. Almost no chance of winning. So even though my bet is 1 year away, it's only worth 200$ instead of the 1,000$ i originally paid because the chance of that team pulling a an amazing year out of their ass is virtually impossible with their lineup and bad streak. I lost money even before the event had a chance to play out. No one wants my bet on them because the consensus is that they will lose for sure. Hence it lost value. Someone may still buy it for 200$ though, so I can get some of my money back and they might want it because it's super cheap and if the team does pull off some crazy miracle, they could win a ton of money!
With options you are betting on *what* will happen and *when* it will happen. As the date gets closer the % chance of you being right goes to the extreme -> Definitely will or definitely wont. Things that fall under "definitely dont" are super cheap because well.....it "definitely wont" happen. However in the 1 out of a million chances that some crazy shit goes down, that cheap thing gets super valuable. Low capital risk, low chance of win, but when you do win you win big.
Non-Market example:
You and I make a bet that man will land on Mars before the year 2100. Or that team X will win the world series in 2030! Well those dates are a long way off and it's entirely possible that those could happen. Advances in technology for the Mars thing and team X could draft/trade for amazing players! So this bet will cost me 1000$ because there is a high chance it could happen and a lot of time to see what may occur.
Using the Mars example, we come up with an amazing new rocket or launch system in the year 2050, we build a space base and create artificial gravity in 2060....well now things are looking really positive we will get to Mars because look at our advances. My 1000$ bet is now worth 50,000$ because at the current rate it is almost a guarantee that we'll get there. I "sell" my bet to someone else to get my profit, and the person buying it think it will go from 50,000$ to 100,000$ so he's in too!
Using the sports team winning in 2030 example, let's say it's now 2029. They have lost the last 3 years, their best player got injured and they have crappy picks in the 2030 draft. Well shit, things are not looking good for them. Almost no chance of winning. So even though my bet is 1 year away, it's only worth 200$ instead of the 1,000$ i originally paid because the chance of that team pulling a an amazing year out of their ass is virtually impossible with their lineup and bad streak. I lost money even before the event had a chance to play out. No one wants my bet on them because the consensus is that they will lose for sure. Hence it lost value. Someone may still buy it for 200$ though, so I can get some of my money back and they might want it because it's super cheap and if the team does pull off some crazy miracle, they could win a ton of money!
With options you are betting on *what* will happen and *when* it will happen. As the date gets closer the % chance of you being right goes to the extreme -> Definitely will or definitely wont. Things that fall under "definitely dont" are super cheap because well.....it "definitely wont" happen. However in the 1 out of a million chances that some crazy shit goes down, that cheap thing gets super valuable. Low capital risk, low chance of win, but when you do win you win big.
tugofpeace
Pronouns: zie/zhem/zer
- 972
- 2,188
lol, isn't moody's the shit tier institution that gave AAA ratings to dogshit CDO's during the mortgage crisis back in 2008
- 1
- 1
Lambourne
Bronze Baronet of the Realm
- 3,229
- 7,525
Excerpt from the report:
I'm sure there will be attempts to dismiss this as Orange Man Bad news but fact is that US deficit is, and has been, far higher than other advanced economies. For reference, the norm to stay in the Eurozone is 3%.
Graph is from a fairly objective article from the IMF here. Came out before the election actually.
econofact.org
Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits.
During that time, federal spending has increased while tax cuts have reduced government revenues.
As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.
Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024.
If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade.
As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.
We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.
Despite high demand for US Treasury assets, higher Treasury yields since 2021 have contributed to a decline in debt affordability.
Federal interest payments are likely to absorb around 30% of revenue by 2035, up from about 18% in 2024 and 9% in 2021. The US general government interest burden, which takes into account federal, state and local debt, absorbed 12% of revenue in 2024, compared to 1.6% for Aaa-rated sovereigns.
While we recognize the US' significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.
I'm sure there will be attempts to dismiss this as Orange Man Bad news but fact is that US deficit is, and has been, far higher than other advanced economies. For reference, the norm to stay in the Eurozone is 3%.
Graph is from a fairly objective article from the IMF here. Came out before the election actually.
The United States’ Fiscal Policy in a Global Context | Econofact
Public debt in the United States is projected to rise faster and reach higher levels than in most other advanced economies.
Jysin
Bronze Baronet of the Realm
- 6,892
- 5,124
Big Phoenix
Pronouns: zie/zhem/zer
- 47,803
- 103,265
Boomers will ruin this country before they die.Excerpt from the report:
Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits.During that time, federal spending has increased while tax cuts have reduced government revenues.As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024.If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade.As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.Despite high demand for US Treasury assets, higher Treasury yields since 2021 have contributed to a decline in debt affordability.Federal interest payments are likely to absorb around 30% of revenue by 2035, up from about 18% in 2024 and 9% in 2021. The US general government interest burden, which takes into account federal, state and local debt, absorbed 12% of revenue in 2024, compared to 1.6% for Aaa-rated sovereigns.While we recognize the US' significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.
View attachment 586665
I'm sure there will be attempts to dismiss this as Orange Man Bad news but fact is that US deficit is, and has been, far higher than other advanced economies. For reference, the norm to stay in the Eurozone is 3%.
Graph is from a fairly objective article from the IMF here. Came out before the election actually.
The United States’ Fiscal Policy in a Global Context | Econofact
Public debt in the United States is projected to rise faster and reach higher levels than in most other advanced economies.
- 4
- 1
Furry
Email Loading Please Wait
- 23,733
- 32,024
Say what you want about moody's their outlook on the US's debt situation is rosy. We've dug ourselves a massive hole and nobody is willing to do what it takes to get out.
- 1
Lambourne
Bronze Baronet of the Realm
- 3,229
- 7,525
Definitely a lot of old thinking going around that needs to catch up to reality. Many are still thinking like it's 1985 when the US, Western Europe and Japan were 70% of the world economy and everyone else better play along or get cut off.
This style of thinking shows up a lot in the EU where they'll just regulate everything and assume that business will comply and not simply go elsewhere. It's increasingly stopped working.
Haus
I am Big Balls!
- 15,228
- 62,016
It should also be noted that Moody's is the LAST of the big three to downgrade the US.
S&P did it in 2011
Fitch did it in 2023
In both those cases there was a market downturn after. (I think it was 10% in 2011 and 8% in 2023). So the question is if this one will cause the same.
There's also Egan-Jones, they downgraded the US three steps, over three downgrades around the 2011-2012 timeframe.
Apparently this is already causing upward pressure on short term treasuries, so a big question will be how it affect treasury rates overall which could cause some moderately large problems for Trump soon when it's "refinance the debt" time.
S&P did it in 2011
Fitch did it in 2023
In both those cases there was a market downturn after. (I think it was 10% in 2011 and 8% in 2023). So the question is if this one will cause the same.
There's also Egan-Jones, they downgraded the US three steps, over three downgrades around the 2011-2012 timeframe.
Apparently this is already causing upward pressure on short term treasuries, so a big question will be how it affect treasury rates overall which could cause some moderately large problems for Trump soon when it's "refinance the debt" time.
- 2
Bought some UNH this morning. We'll see if I'm too early, as I tend to be. Hopefully insiders buying will turn some sentiment.