What does “Option volume 628 percent above average” mean for a particular stock for trading today? This is a stock that has an average volume of around 3,000,000 shares traded per day, but had an 11.8million share trade on Monday, and is up about 2/3 in the past two months.
If I have stock acquired in a stock purchase plan that becomes LTCG in February, but I like the price it is at today, what can I do to “lock” in the gains (like options)? It’s up over 100% above where I bought it. An additional lot becoming tax-favorable next August is also up about 100%. Or is anything I do going to incur the same kind of tax penalty I’m trying to avoid?
We’re talking about ~500 shares and around $13,000 each.
I think it means that the underlying options (calls and puts) are trading much more (by 628%) than they usually do. This may be caused by various reasons - big movements in the underlying stock, new material news on the company (acquisition, sale, unexpected earnings results, large insider trades, etc.), or other reasons.
To lock in your gains, you could put in a stop-loss order. For example, if the stock is trading at $13,000 you could put in a stop order at $11,000, so if the stock takes a hit and goes down to $11,000 you would automaticall sell your shares. These orders are usually good for 60 days, so you would need to update the order when it expires. You could also protect the gains by using options but that can get more complicated.
I think what you’re saying is you want to protect your big gain but want to avoid paying a short term capital gains tax if the stock tanks. Another thing you could do is buy some put options that expire in February, after you’ve held the stock for 1 year. Generally speaking, these options would get more valuable as the stock lowers in price. By holding these options you would have three choices - you could either sell the options, exercise the puts (here you would then basically be selling your underlying shares at the strike price), or letting the options expire worthless (you would lose your initial investment in the options). If you exercised the options, make sure its after you’ve held the shares 1 year to avoid the ST capital gains tax.
You should figure out the difference in capital gains tax dollars between ST and LT and factor this into your decision.
I think what you’re saying is you want to protect your big gain but want to avoid paying a short term capital gains tax if the stock tanks. Another thing you could do is buy some put options that expire in February, after you’ve held the stock for 1 year. Generally speaking, these options would get more valuable as the stock lowers in price. By holding these options you would have three choices - you could either sell the options, exercise the puts (here you would then basically be selling your underlying shares at the strike price), or letting the options expire worthless (you would lose your initial investment in the options). If you exercised the options, make sure its after you’ve held the shares 1 year to avoid the ST capital gains tax.
You should figure out the difference in capital gains tax dollars between ST and LT and factor this into your decision.
Thanks, that tells me what I want to know. Do you think that the increased option action is due to a bunch of people buying puts for the February tax-advantaged deadline, thinking exactly what I’m thinking?
Is the following correct? I’ve never done this, so bear with me.
A put option is a contract to sell a stock at a given price (the strike price). If a stock goes down in price, the option is more valuable because someone can buy the stock on the market for cheaper than the strike price and sell it for a profit. I make money by selling the option at a profit, but take the hit on the loss of value in my held stock. If I exercise the puts, I sell my now tax-favored stock at the stock price, and my cost is the cost of the put option (which should be less than the difference in ST and LT taxes, else I’d have just sold my stock and paid the ST tax instead of the LT tax). If I let them expire, then the stock price is at or above the strike price of the options, and I’ve locked in “today’s” price at the cost of the option (“insurance”).
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I note that the current prices for the put options are going down, because the stock has been going up, right?
I see that the April 2012 put options for the current price are at 3.30. What does that number mean? Is that per 100 shares or something?
I’m not sure why there is so much volume in the options - often the option volume follows the stock volume. There must be something major going on with that company/stock.
Question: “A put option is a contract to sell a stock at a given price (the strike price). If a stock goes down in price, the option is more valuable because someone can buy the stock on the market for cheaper than the strike price and sell it for a profit.”
Answer: As the stock price goes down, usually all of the put option prices go up regardless of their strike price. Some put options are referred to as “in the money” which means that the strike price is greater than the stock’s price. This means you can sell the stock at a price that is greater than the underlying price on the stock market - thus “in the money”. The remaining put options are “out of the money”, that is the strike prices are lower than the strike price. These options still have value but the value declines as the expiration approaches.
Question: I make money by selling the option at a profit, but take the hit on the loss of value in my held stock.
Answer: That is correct.
Question: If I exercise the puts, I sell my now tax-favored stock at the stock price, and my cost is the cost of the put option (which should be less than the difference in ST and LT taxes, else I’d have just sold my stock and paid the ST tax instead of the LT tax).
Answer: If you exercised the put options, you would be (in effect) selling your shares at the strike price. You should calculate the tax differences, the costs of the options, and the transaction fees before you decide to do anything, so you know what the bottom-line effect will be.
Question: If I let them expire, then the stock price is at or above the strike price of the options, and I’ve locked in “today’s” price at the cost of the option (“insurance”).
Answer: Correct. But you only really have the price “locked in” as long as you hold the option contracts.
Question: I note that the current prices for the put options are going down, because the stock has been going up, right?
Answer: Correct
Question: I see that the April 2012 put options for the current price are at 3.30. What does that number mean? Is that per 100 shares or something?
Answer: Yes, that means it costs $3.30 X 100 = $330 plus commission to buy one put option contract. If you buy a put option contract, it allows you to sell 100 shares of the underlying stock at the strike price.
you could always finance your purchase of puts by selling deep out of money calls. it will make your break even point much better on the original shares you owe. do it in 1:1 ratio (puts to calls) don’t fall for zero cost idea. you do not want to be short naked calls ( by selling number of calls that represents number of your shares you protect yourself in case you get called on your calls at expiry if they become in the money)
I do not have an answer as such but here is my take on investing. Never do anything that you do not understand or do it with the full knowledge that you are gambling; not investing.
I myself stick to ETFs and sometimes allow myself to buy a specific stock but I always consider that specific stock the “gamble” part of my portfolio.
I often wanted to short-sell stocks when I feel that a company is going down and have never been wrong yet. But I do not really understand fully how short-selling works so I don’t do it.
you could always finance your purchase of puts by selling deep out of money calls.
This is called a collar. Typical hedge for when you own an underlying position and either can’t sell (due to restrictions) or in your case don’t want to because of capital gains.
you could always finance your purchase of puts by selling deep out of money calls.
This is called a collar. Typical hedge for when you own an underlying position and either can’t sell (due to restrictions) or in your case don’t want to because of capital gains.
you are assuming same expiry date for both call and puts in his case then…