Option Investor


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Please look into the availability of using CABINET TRADES when you are thinking
of closing out a deep out of the money option that you have written instead of just taking the $0.05 - $0.10 spread they charge you, CABINET TRADES allow you to close out a position at $1.00 or $0.01 per option contract ( eg. 5 contracts = $5, 10 = $10 ) plus whatever your firm charges as commission


A trade that allows options traders to liquidate deep out-of-the-money
options by trading the option at a price equal to one-half tick. In most cases it is
at a price of $1 per option ( $0.01). If might be advantages to check with your current Broker dealer and inquire as to the availability of this type of trade. Many times during the year we will have put writes that start out maybe 3-4 points out of the money but end up 10 - 15 puts out of the money with 2 or more weeks left to expiration ( a couple positions currently are in the position.

I think it is ridiculous for the specialist and your broker-dealer to expect you to close out a position so far out of the money for $5 or $10 dollars ($0.05 or $0.10). A lot of of situations you will find it is prudent to close out a gain and not wait another 2-3 weeks for the option to expire We all know about "Murphy's Law". Anyway, you might want to close out several positions that are way out of the money and free up margin. if your firm has what is called a "cabinet price" which is $1 per option and you have a low enough commission fee. It might be advantages to close out a position of 10 contracts for $1 each plus your commission. Let's say you received only $250 for a put write ($0.25) X 10 contracts...If the option were trading at $0.00 (or no offer) by $0.05. It would not be prudent to pay your broker-dealer $5 X 10 = $50 and commission say $12.50 or $62.50. You'd be giving back more than 1/4 of your profit if you count your initial commission as well.

However, if you could close them out for $1 per option or $1 X 10 =$10 plus $12.50

That would be only $22.50. Almost $40 saving.....Times 10, 20, 30 trades

You get the picture.

So as a suggestion please inquire with your broker dealer as to yourability to execute
"Cabinet trades" when you planning on closing our an option that is way out of the money.

Just something you might want to look into.

Of course, in most cases it would be advisable to let the options expire worthless. However, there are certain situations where the loosening up of MARGIN might be more important than a few dollars or where you are just sitting on top of 90% of your profit for 2 -3 weeks makes no sense. This is where the CABINET price could come in handy.

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