QQQQ Condor Management

roarflolo said: "Hi, I recently started learning about option trading and I just started paper-trading using TOS. I have a condor position on and hope someone could answer some of my questions My position is: [INDENT][FONT="Courier New"]QQQQ Jan23 - 24 days to FEB07 expiration * Price : Current Value * +10 FEB07 41 PUT. 0.08 : 0.10 * +10 FEB07 47 CALL 0.03 : 0.00 * -10 FEB07 42 PUT. 0.22 : 0.25 * -10 FEB07 46 CALL 0.12 : 0.10 * CREDIT 0.23 * LIQUIDATE 0.1-0.25-0.1 [/FONT] [/INDENT] [LIST=1] [*]I could sell the 41 PUT for an additional 0.10 profit right now, is that a good idea or not? What would be the downside to doing that? [*]My 47 CALL is already worthless, should I have kept better track of the position and sold it before it became worthless? [*]I'm short a 46 CALL which means someone has a contract to sell me stock at 46, with the current price at 43.57 why doesn't that someone exercise to make 2.43 per share? [*]I could buy back the 46 CALLS is that a good idea? Upside? Downside? [/LIST] Looking forward to some good guidance :-)"

holzie said: "[QUOTE=roarflolo]Hi, I recently started learning about option trading and I just started paper-trading using TOS. I have a condor position on and hope someone could answer some of my questions My position is: [INDENT][FONT="Courier New"]QQQQ Jan23 - 24 days to FEB07 expiration * Price : Current Value * +10 FEB07 41 PUT. 0.08 : 0.10 * +10 FEB07 47 CALL 0.03 : 0.00 * -10 FEB07 42 PUT. 0.22 : 0.25 * -10 FEB07 46 CALL 0.12 : 0.10 * CREDIT 0.23 * LIQUIDATE 0.1-0.25-0.1 [/FONT] [/INDENT] [LIST=1] [*]I could sell the 41 PUT for an additional 0.10 profit right now, is that a good idea or not? What would be the downside to doing that? [*]My 47 CALL is already worthless, should I have kept better track of the position and sold it before it became worthless? [*]I'm short a 46 CALL which means someone has a contract to sell me stock at 46, with the current price at 43.57 why doesn't that someone exercise to make 2.43 per share? [*]I could buy back the 46 CALLS is that a good idea? Upside? Downside? [/LIST] Looking forward to some good guidance :-)[/QUOTE] Hello and welcome to the board. I have to be brief today but I will give you some pointers. I will start with "pointing out" your mistakes. 1) Try not to trade the QQQQs, DIAs, SPYs...unless they have a 5-point strike increments. The reason is that the little bitty premium you receive between 1 point strikes, like the Qs, will be wiped out by commissions. You just traded 40 contracts...and got $230 dollar credit. Your broker already has at least $60 out of the $230 on a 1 round trip. Rule #1 for you, if you can't get at least .50 credit PER LEG (1 contract bought/1 contract sold) you do not trade it. I personally do not bother with anything under 0.70 because I like to buy my positions back early for 0.20 or less - I don't hold till expiration - ever, or haven't yet. So on your position you are talking at least $120 in commissions. You could have gotten the same credit for trading 4*1 contract on the SPX or RUT with the same risk/margin requirement. The difference is that you would pay $6 in commissions in 1 trip. You cannot sell your 41 put because you would be naked. 2) You can't sell it or get rid of it because you would, again, be naked the 46 call. The options should become worthless or almost worthless which is the ultimate goal, especially for your short calls/puts. 3) No. If someone holds your 46 call that means that they have the right, but not obligation, to buy 100 shares of QQQQ for $46 per share. Why would they want to do that if they trade around $43. I am glad you are a new "swimmer". Welcome to the TOS club. I recommend that you subscribe to TheOptionCLub.com as well, They will start sending you really good tutorials on options, which you seem to need. Keep paper trading, watch your position and try to make a better trade next time. We are here to help. Holz."

roarflolo said: "Good point about the commissions, I did set up a the same sort of position on the RUT, using four contracts and the TOS software tell me commission would be $11.60 (order confirmation dialog)... where do you get $6? I was of course confused about the short 46 call :-) So the following reasoning would be accurate I hope: [INDENT]Leg 1: +10 PUT 41 - right to sell at 41 - covers short 42 PUT (with a 1 loss) -10 PUT 42 - obligation to buy at 42 - could be exercised when price is below 42 Leg 2: -10 CAL 46 - obligation to sell at 46 - could be exercised when price is above 46 +10 CAL 47 - right to buy at 47 - covers short 46 CALL (with a 1 loss) [/INDENT] Given that I've put on a lousy position :whacky011:, I guess the way forward would be to let it expire and, if it gets close to my break-evens, cut my losses by taking the position off?"

A Cake On said: "I know it's been a while since this was posted but I would like to throw my two cents in. About the above mentioned $6 commission, that comes from $1.5 dollar per contract commission that TOS charges. Your condors have 4 legs so there is your $6. I agree with Holzie above, stay away from options on ETF's such as SPY, QQQQ, IWN etc and go with the index options like SPX, NDX, and RUT. In addition to better spreads (i.e. higher credits for trades), you have better tax treatments on an index option. Someone correct me if I'm wrong on the following: most options are treated as short term investments which means they are taxed at the same bracket that your earned income falls into, which could be somewhere about 23% or greater depending on how much you make. Index options however are treated as 60% Long term, and 40% short term. The benefit there is that Long term options are taxed at 15%. So with the 60/40 blend of an index option you fall in about 19% or so, as far as tax treatment. I don't know about you, but I would like to keep a few more % of my money whenever I can. Hope this helps -Andre"

holzie said: "[QUOTE=A Cake On]I know it's been a while since this was posted but I would like to throw my two cents in. About the above mentioned $6 commission, that comes from $1.5 dollar per contract commission that TOS charges. Your condors have 4 legs so there is your $6. I agree with Holzie above, stay away from options on ETF's such as SPY, QQQQ, IWN etc and go with the index options like SPX, NDX, and RUT. In addition to better spreads (i.e. higher credits for trades), you have better tax treatments on an index option. Someone correct me if I'm wrong on the following: most options are treated as short term investments which means they are taxed at the same bracket that your earned income falls into, which could be somewhere about 23% or greater depending on how much you make. Index options however are treated as 60% Long term, and 40% short term. The benefit there is that Long term options are taxed at 15%. So with the 60/40 blend of an index option you fall in about 19% or so, as far as tax treatment. I don't know about you, but I would like to keep a few more % of my money whenever I can. Hope this helps -Andre[/QUOTE] Yeah Andre, that's exactly right. Index options are treated 60/40 long-term/short-term even if you're in and out on the same day. I know this but have no clue how to input it that way into T-Tax. I just filled my tax return and every single trade was treated as 100% short-term. So how the hell do you cliam it that way at the end of the year? would be good to know for next year. Holz."

A Cake On said: "I'm not sure how it works with turbo tax. I'm not sure how to do any of it to be honest, but the TOS folks have a dedicated "tax guy" whose name I can't remember at the moment, who might be able to help. They have some kind of new software that they rolled out that does trade matching, and puts all of your trades in a .txf file that will import into any tax software. I don't know that much about it since 2008 will be my first tax season, but the TOS guy made it seem like their software handles all of it. i would hope that it inputs the index options correctly so you can get proper tax treatment."

holzie said: "[QUOTE=A Cake On]I'm not sure how it works with turbo tax. I'm not sure how to do any of it to be honest, but the TOS folks have a dedicated "tax guy" whose name I can't remember at the moment, who might be able to help. They have some kind of new software that they rolled out that does trade matching, and puts all of your trades in a .txf file that will import into any tax software. I don't know that much about it since 2008 will be my first tax season, but the TOS guy made it seem like their software handles all of it. i would hope that it inputs the index options correctly so you can get proper tax treatment.[/QUOTE] Oh ok, thanks I will check on that. That's obviously very important. Holzie."

Rbreb13 said: "Keep us posted on the tax thing. I'd like to know too."

holzie said: "[QUOTE=Rbreb13]Keep us posted on the tax thing. I'd like to know too.[/QUOTE] Got it, apparently the TOS tax software works with the desktop version of Turbo Tax. Index securities are marked as such and should be importable to TT. Well, I will let you know next year how it worked :) It's too late this year. Here is the link: [url]http://www.thinkorswim.com/manuals/taxHandbook.pdf[/url] Holzie."