Why are SPY options available at certain half-dollar (50 cent) strike prices but not others?

The option exchange decides what strike prices to offer. Sometimes the oddball ones come into existence because of a stock split (not applicable here). Other times, it’s because someone contacts the exchange and they add the strike price.Jan 27, 2018

What determines option strike prices?

Assume that you have identified the stock on which you want to make an options trade. Your next step is to choose an options strategy, such as buying a call or writing a put. Then, the two most important considerations in determining the strike price are your risk tolerance and your desired risk-reward payoff.

Is it better to buy ITM or OTM options?

Because ITM options have intrinsic value and are priced higher than OTM options in the same chain, and can be immediately exercised. OTM are nearly always less costly than ITM options, which makes them more desirable to traders with smaller amounts of capital.

What is the best strike price for covered calls?

In summary, we can see that the best covered call strike price when writing a covered call is the one that meets your goals, as measured using the 4 calculated returns: $90 Strike (ITM) safest with highest % Downside Protection with highest % Probability of assignment with no chance of stock appreciation.

Should I buy in the money or out of the money calls?

Out-of-the-money options perform better with a substantial increase in the price of the underlying stock; however, if you expect a smaller increase, at-the-money or in-the-money options are your best choices. Bullish investors must have a good idea of when the stock will hit their target price—the time horizon.

Who sets strike price?

Strike prices are typically set by options exchanges like the New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE). The relationship between an option’s strike price and its spot price is one of several factors that affect the option’s premium (how much it costs to purchase the option).
Mar 23, 2022

What if an option falls below strike price?

If the stock trades below the strike price, the call is “out of the money” and the option expires worthless. Then the call seller keeps the premium paid for the call while the buyer loses the entire investment.
May 17, 2022

Why would you buy ITM options?

Advantages of In the Money Call Options
Once a call option goes into the money, it is possible to exercise the option to buy a security for less than the current market price. That makes it possible to make money off the option regardless of current options market conditions, which can be crucial.

What happens when a call option goes above the strike price?

Call options are “in the money” when the stock price is above the strike price at expiration. The call owner can exercise the option, putting up cash to buy the stock at the strike price. Or the owner can simply sell the option at its fair market value to another buyer before it expires.
Nov 1, 2021

Why would you buy ITM puts?

When Is a Put Option “In the Money”? A put option is considered in the money (ITM) when the underlying security’s current market price is below that of the put option. The put option is in the money because the put option holder has the right to sell the underlying security above its current market price.

How do you know if an option is overpriced?

When it comes to the price of an option, the amount of time that the option has until expiration and the level of its implied volatility are two of the main factors that play into whether the option’s price is actually cheap or expensive.
May 13, 2019

How far out should you buy calls?

We suggest you always buy an option with 30 more days than you expect to be in the trade.

When should you buy deep in the money calls?

So, if a call option is deep in the money, it means that the strike price is at least $10 less than the underlying asset, or $10 higher for a put option. For lower-priced equities, $5 or less may be the level necessary to be deep in the money.

What is a poor man’s covered call?

What is a poor man’s covered call? A poor man’s covered call (PMCC) entails buying a longer-dated, in-the-money call option and writing a shorter-dated, out-of-the-money call option against it. It’s technically a spread, which can be more capital-efficient than a true covered call, but also riskier and more complex.

Should I sell deep in-the-money covered calls?

The advantage of selling deep in the money calls is the safety you get with increased downside protection (intrinsic value). The disadvantage is that there may not be much time premium and you give up all of your upside potential.

Should you exercise deep in-the-money calls?

Occasionally a stock pays a big dividend and exercising a call option to capture the dividend may be worthwhile. Or, if you own an option that is deep in the money, you may not be able to sell it at fair value. If bids are too low, however, it may be preferable to exercise the option to buy or sell the stock.

Do you pay taxes on call options?

If you exercise a call option by buying stock from the writer at the designated price, add the option cost to the price paid for the shares. This becomes your tax basis. When you sell, you will have a short-term or long-term capital gain or loss depending on how long you hold the stock.
Mar 18, 2015

Do you get taxed when you exercise stock options?

Non-qualified stock options (NSOs) are granted to employees, advisors, and consultants; incentive stock options (ISOs) are for employees only. With NSOs, you pay ordinary income taxes when you exercise the options, and capital gains taxes when you sell the shares.

Why options are rarely exercised?

There are two reasons why most options aren’t exercised. The first is obvious, and the second, less so. The obvious: An option that’s practically worthless doesn’t get exercised. Options that reach expiry and remain unexercised are almost always worthless bets that simply didn’t pay off.
Jan 26, 2014

Are ITM options always assigned?

After the close on expiration day, ITM options are automatically exercised or assigned, whereas OTM options are not, and typically expire worthless (often referred to as being “abandoned”).
Jun 12, 2020

Do ITM options always exercise?

Those in-the-money options will be automatically exercised unless the trader provides a contrary exercise notice (“do not exercise”) to the OC in which case these options will not be exercised.
Jan 9, 2013