Can you "double-close" options?

[Vara La Fey]

I think in terms of plays. To wit:

In real estate, there is (or was) an angle called the "double-close". Ex: I have no money to buy a house, but I can still write a purchase contract to buy one at 150k, then write a sales contract for someone else to buy it at 200k. Both closings happen at one sitting, but in a very specific order: the title co takes my buyer's 200k and passes 150k of it to my seller, leaving 50k with me. I controlled a house I couldn't buy, and all is done as agreed.

Now let's say I have no money to buy 100 shares of XYZ, but I can buy a call on them at 50 (their current share price), then write (and sell) another call on them at 55. Next week XYZ goes there and my option buyer executes. If a brokerage "double-closes" this in the same order as in real estate, then my buyer's exercise of 5500 pays for my own exercise of 5000, leaving 500 with me. I controlled 100 shares I couldn't buy, and all is done as agreed. (I think.)

I'm not entirely sure it would offer any advantage over merely selling the $50 call I already own. But if I could buy a LEAPS at current share price (unlikely?), I could theoretically write a call on it every week/month until 1) XYZ drops below my strike price, 2) someone exercises and we double-close, or 3) I sell it and make my money that way.

Will a broker do these double-closes? Will the SEC allow it between consenting adults?

Thanks.

 

[gtopmafia]

You need margin you wont be able to do this without money in the account.

Within the confines of margin you can roll over every month to produce income as long as the trade goes the way you expect yes.

Let me suggest this book to you its fantastic:

Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits (Bloomberg Financial)
Passarelli, Dan

There is a older pdf copy on traders library which is pretty much the same

 

[Vara La Fey]

You need margin you wont be able to do this without money in the account.
Within the confines of margin you can roll over every month to produce income as long as the trade goes the way you expect yes.
Let me suggest this book to you its fantastic:
Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits (Bloomberg Financial)
Passarelli, Dan
There is a older pdf copy on traders library which is pretty much the same

Oooh, do you mean loans from the broker? I'm kinda "meh" about that. Will I need enough money in my acct to cover the cost of the option's underlying stocks? Or just enough to cover the option's premiums?

I can't find the older Passarelli pdf even with the author search. :-( But I did stumble across "Trading On Borrowed TIme" by Jea Yu. I'll be reading that one tonight.

Thanks for the help.

 

[gtopmafia]

http://www.traders-library.com/Trading Books/Dan Passarelli - Trading Option Greeks/

I would expect you would need money to cover the actual stock although I may be wrong In theory a straddle nets out but this will really depend on the broker i guess

 

[Vara La Fey]

Yay. I DLed the Passarelli and bookmarked Trader's Library. TY!! (I didn't know the Library is a whole other site.)

I'm in process of signing up with TD Ameritrade. All the reviewers like them, they seem to have everything I need for a long time to come, and I've really been wanting to try on some thinkorswimware. I've already spent a couple days using their paperMoney version, and think I'll love it when I know more. I'll ask them this stuff before too long.

I wasn't thinking straddle on the double-close. A call at <n> and another at <n+x> might be a bull call spread....? There seems to be a name for every variation. But I dunno what the name is for buying a put with a higher strike price than the call, so I call it a "Cross" (following the two-legged analogy) or an "X". Dry-ran a couple of those last week. Since both legs start off ITM, those things are expensive, which pushes my breakevens too far apart. 'Course TSLA plunged last week and every one of my 6 dry-runs woulda made money, but still.... :-(