OK, it came to me why the commission for my spread trade today was only $17.95 instead of the expected $26.
An option trade is $9.95 plus $1 per additional contract
I figured my trade was two calls and 3 additional contracts per call. That would be 2 x $10 plus 2 x $3 = $26
When I talked to the order desk about how the spread was handled, they said that it was handled as one trade and that I could not tie a bull put spread to it (makes it an iron condor).
So one option spread is one trade at $9.95 plus $1 for each additional contract. They are charging $1 for every contract, at 8 contracts that is $17.95.
This makes trading spreads and other multiple leg strategies even more cost effective than I thought.
Jeff.
Questrade, My direct access discount broker.
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Thanks a lot for the sharing. It's good to know what Questrade changes spread like this. I am just curious what will happen when contracts expire. I means will they charge you for the assignments when the spread expire worthless.
ReplyDeleteThere is no additional commission charges unless you actively close the spread. When they exire worthless you keep the premium difference and that is it, there is no assignment as both calls are OTM.
ReplyDeleteIf the underlying security gets close to the short call then it would be prudent to close, hopefully for a profit even if you have to give some of the cash back...better then letting it go to a full loss.
I haven't worked out the breakeven prices yet but that will be a spreadsheet field to use as a "get out now!" price.
Jeff.
That was a quick response. This is a Bear Call Spread, If I understand you correctly, you are taking the time value of the option. When the spread expire worthless. Both calls actually are ATM. Assume the price of SPY is 119 at OE day, you will lose Max. I think the breakeven price is 115+0.38-0.01=115.37 (1 dollar for 1 contract equals 1 cent of share). --James
ReplyDeleteThe breakeven is right but the commission costs are $9.95 plus $1 per contract. I just haven't stuck this into my spreadsheet yet.
ReplyDeleteBoth calls cannot be ATM as they have different strikes. When they expire I want them both to be OTM as that is when I get to keep all the premiums...as long as the stock price is a penny under the short option strike I keep all the cash.
Maximum loss is when the stock price is at or higher than the purchased call strike which puts the sold call $3 or more ITM (or whatever strike difference applies). This is where the purchased call gets exercised to cover the assigned sold call limiting the los to the spread less premium plus commissions. Still no commissions or costs for the expiry actions.
Jeff.
I see, thank you for the answer. Good luck for the trading. :-) --James
ReplyDeleteI made a small error in nomenclature when I said "...I could not tie a bull call spread to it... ". I meant that I could not tie a bull put spread to it as the initial spread trade is a bear call spread. Correction is made.
ReplyDeleteJeff.