you just buy the stock, then right after sell the call? is it cheaper to purchase them in groups such as married put, or a straddle? if a stock is exercised will it automatically sell the unit its purchased with? exacly how does it work?
<<<whats the advantage of buying an option trade as one unit together>>>
1. You are never unhedged. While the odds of the market moving badly against you (between two separate trades to establish a spread) are low, it only has to happen once on a large position to cost you a lot of money.
2. For some spreads, you will require less margin with a spread order.
3. You are more likely to get your order fillid than you are with two separate limit orders.
4. You are more likely to get a better price than you are with two separate limit orders.
<<<If you were doing a covered call couldn’t
you just buy the stock, then right after sell the call?>>>
Yes you could.
<<<is it cheaper to purchase them in groups such as married put, or a straddle?>>>
Most brokerages will charge separately for each leg of a spread, so you do not save any money on transaction fees. However, there is a good chance you will get a better fill between the bid and the ask quotes. This is particularly true is the option is not very liquid (i.e. if the volume of them is low) or if the spread between the bid quote and and ask quote is large.
<<<if a stock is exercised will it automatically sell the unit its purchased with?>>>
I assume you mean "if an option is exercised" since stocks cannot be exercised.
The answer is no. It does not automatically trigger anything for the other leg of the spread.
<<<exacly how does it work?>>>
Let me share an example. Assume I did a buy-write for 500 shares of XYZ. (A buy-wirte is spread buying the stock and selling a covered call for the same number of shares.) If the owner of the 5 calls I sold exercises them, and I am assigned, I will sell 500 shares of XYZ. If the only shares of XYZ that I owned were the 500 I purchased as part of the buy-write, those are the 500 shares I would sell. However, if I has already owned 500 shares of XYZ before the buy-write, the FIFO (first in – first out) rule would apply and I would sell the 500 shares I owned before doing the buy-write.
Yes, you can buy the stock then sell the call. Transactions usually take place so quickly there is not much chance of wide price swings during the interim. Buying the trade as one unit ensures that the prices and conditions are exactly as you want.
There is probably no difference in the commissions you pay. and once you have the combination, each is treated as a separate option. If one side is exercised, the other side is most likely worthless, but it will not be automatically canceled. It is best to ask you broker about this, because different brokers may have different policies.
References :
<<<whats the advantage of buying an option trade as one unit together>>>
1. You are never unhedged. While the odds of the market moving badly against you (between two separate trades to establish a spread) are low, it only has to happen once on a large position to cost you a lot of money.
2. For some spreads, you will require less margin with a spread order.
3. You are more likely to get your order fillid than you are with two separate limit orders.
4. You are more likely to get a better price than you are with two separate limit orders.
<<<If you were doing a covered call couldn’t
you just buy the stock, then right after sell the call?>>>
Yes you could.
<<<is it cheaper to purchase them in groups such as married put, or a straddle?>>>
Most brokerages will charge separately for each leg of a spread, so you do not save any money on transaction fees. However, there is a good chance you will get a better fill between the bid and the ask quotes. This is particularly true is the option is not very liquid (i.e. if the volume of them is low) or if the spread between the bid quote and and ask quote is large.
<<<if a stock is exercised will it automatically sell the unit its purchased with?>>>
I assume you mean "if an option is exercised" since stocks cannot be exercised.
The answer is no. It does not automatically trigger anything for the other leg of the spread.
<<<exacly how does it work?>>>
Let me share an example. Assume I did a buy-write for 500 shares of XYZ. (A buy-wirte is spread buying the stock and selling a covered call for the same number of shares.) If the owner of the 5 calls I sold exercises them, and I am assigned, I will sell 500 shares of XYZ. If the only shares of XYZ that I owned were the 500 I purchased as part of the buy-write, those are the 500 shares I would sell. However, if I has already owned 500 shares of XYZ before the buy-write, the FIFO (first in – first out) rule would apply and I would sell the 500 shares I owned before doing the buy-write.
References :