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I have a very small account and I have been playing with options. I started on TD Ameritrade but the commission hurts when only buying one contract at a time. I set up an account on eoptions and I can't figure out what I am doing wrong. When the current stock price is 34.75 and I buy a put (buy to open) at a strike price of 35 shouldn't I start out making money? I bought the same put on both TD Ameritrade and eoptions and on TD I start out with a positive $2 and on eoptions I started out negative 2 and as the price dropped my p/l was a negative 6. 

Thank you for any help. I am not sure why I can't figure out this platform.

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rated:
idratherfish said:   I have a very small account and I have been playing with options. I started on TD Ameritrade but the commission hurts when only buying one contract at a time. I set up an account on eoptions and I can't figure out what I am doing wrong. When the current stock price is 34.75 and I buy a put (buy to open) at a strike price of 35 shouldn't I start out making money? I bought the same put on both TD Ameritrade and eoptions and on TD I start out with a positive $2 and on eoptions I started out negative 2 and as the price dropped my p/l was a negative 6. 

Thank you for any help. I am not sure why I can't figure out this platform.

  Don't worry about and just go fishing instead.

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OP, read up on Bid/Ask spread.

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Thank you, I will do so.

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Stubtify said:   OP, read up on Bid/Ask spread.
 

  
Exactly. Bid/Ask spread is way too much on options. Always place a limit order. Instead of mid-point, I typically start off at 25% (e.g. for something trading at $3-$4, my initial buy price would be around 3.25 or sell price would be around 3.75). And then adjust my limit price towards the mid-point if I really want to execute the trade. If I would rather have it execute at my price, I happily go around doing my work / lunch etc. and hope that the variation in the stock price was enough to trigger the execution.

The other thing to watch out is how exactly does the brokerage calculate your account value. For the longest time, TD would always use the least favorable price - i.e. if you bought at 3.5, your account value would be 3.0. Now they are beginning to use the mid value.

Final point is that bid-ask is not always what it may seem like. For example, with the option trading with a spread of $3/$4, the mid-point is $3.5. However, if I place an order for $3.25 and the order has not yet executed, the option will now trade with $3.25/$4.00 spread. So now because of that one limit order out there, we changed the mid-point. 

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Are you playing with short term puts? Given your lack of understanding of the market dynamics, I do recommend that you should go fishing instead of gambling like this. You are making a trade where you are opening yourself to a whole bunch of trouble - all for 40cents - it is not a good trade. The trade that I would do happily is sell Intc Jan 2019 $35 strike price PUT for around $3.85 or more conservatively, $33 strike price Jan 2019 for $2.90. Giving me about 10% gain on the underlying position, giving enough time for the stock to recover from day-to-day bad news and if the put did get exercised, I would have the Intc stock 10% cheaper than where it is now. And if you want to play it even safer, buy the $28 strike price PUT in addition.

 

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> When the current stock price is 34.75 and I buy a put (buy to open) at a strike price of 35 shouldn't I start out making money?

Your sentence about "shouldn't I start out making money" confused me and I assumed that you were selling put.

OK - you are buying a put. You would pay at least 25cents + premium + commission. So there is no way you start out making money without the stock tanking. If making money was so simple, I would have bought at least a million of these contracts.

Can you list your full trade?

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Quotes are also notoriously bad on some options. Either they're stale or the volume is just too low or both.

I've put limits .05-.10 above the current quoted price and had them fill (these are small lot covered calls, just OTM so we're talking <$1. The small lots probably help greatly as orders that need 2-3 extra contracts can spill over into my order, but still.

.05 to .10 above the quoted price is often 5-20% difference between the quoted price and the actual price I was able to buy/sell at.

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Stubtify said:   Quotes are also notoriously bad on some options. Either they're stale or the volume is just too low or both.

I've put limits .05-.10 above the current quoted price and had them fill (these are small lot covered calls, just OTM so we're talking <$1. The small lots probably help greatly as orders that need 2-3 extra contracts can spill over into my order, but still.

.05 to .10 above the quoted price is often 5-20% difference between the quoted price and the actual price I was able to buy/sell at.

  
Sorry - not understanding what you said. What do you mean by the quoted price? Do you mean the last executed price or 5/10 cents outside the bid/ask range?

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Options are priced on volatility as well, The underlying can stay static and the options will move based on changes in expected vol.

Also, agree it could be the bid/ask spread, which is ridiculous in all but the most active instruments like Apple or SPY.

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