In this post, we’re going to answer a question from YouTube.
If you have a question be sure to submit one by voice here!
That way, you can be more detailed, and you may even hear yourself on the show.
A Question from a Scalper Intra Day Trader
Here’s the question: “I’m a scalper intraday trader. If I buy a short put for 50 cents and sell the put 1 hour later for $1, am I still locked into that trade? I see you said the seller is still committed to the trade after the sale?
The thing is when we’re talking about options, we’re talking about the selling of options. What you do is you sell a put. You sell a put whether you sell or buy a put. Once you’re out of the trade, you’re out of the trade.
Quick example with Harley-Davidson
Let’s pick a stock like Harley-Davidson, and here we buy a put. I go ahead to commit some capital. This is a fake paper money account.
I have a position here right there. +1
Once I go ahead and sell it, I’m out of the trade. And I have no obligations because I’m 0.
That number +1 has changed to 0.
You’re now not obligated any more with anything. The same thing is true when you do something else – the opposite of that. Let’s say you sell it first.
You’re in that seller, and we’ll sell a single this time. We’ll analyze the trade so you can see how this graph looks a little different. You have that unlimited risk.
And when you’re a seller, you could get the stock put to you. Now, if you’re trying to make money from the movement of that stock: let’s say you expect it to go to 16 or 17, you could still do this and make money from the beta decay.
Confirm and send it off, and now you’re in the trade right there. Now we’re in Mattel $3.80, and if I’m done with the trade, I’ll analyze the closing trade. Closeout that trade, right-click and confirm and send it in.
No more obligations. That’s it. Once you’re at 0, there are no more obligations. That’s what I want you to remember. When you’re in neutral, zero – there are no more obligations.
That’s what you’re trying to get to, and that’s the end goal with options trading or within stock trading. When you have 100 shares, but eventually, you’ll get to zero if you’re a long-term investor. It may take a year or two.
If you’re a short term, you’re going plus 100 minus 100 very quickly. Maybe you’re trading more actively, and once you’re at zero, you have the cash in your account, and you’re done.
That’s the way it works. There’s no obligation. If you’re worried, if you sell a put or you buy a put for 50 cents, and when you close out the trade, and you’re back to zero an hour later, you’re done. That’s it, and there’s no obligation.
However, if you try to do it after expiration, that’s a whole different story, you might not even get filled because the contracts are expired. That’s one thing to watch out for, but if you do it within an hour and the contracts are live active in you’re back to zero, there’s usually not an issue unless I guess stock gets held or locked, which is rare to happen.