3 - Realize partial profits and/or modify the trade. This assumes a position is held all the way through expiration. Now, suppose you want to sell a call option on a stock that is trading at $59.75. You could again sell half of your calls at $7, take the original risk off the table, bank the $500, and turn the remaining calls into a vertical spread by selling higher-strike calls on those that remain (see figure 2). Market volatility, volume and system availability may delay account access and trade executions. Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request. Past performance of a security or strategy does not guarantee future results or success. Dont Overlook Mutual Funds, but Choose Carefully, Futures Margin Calls: Before You Lever up, Know the Initial & Maintenance Margin Requirements, To Withdraw or Not to Withdraw: IRA & 401(k) Required Minimum Distribution (RMD) Rules & FAQs, Estate Planning Checklist and Tips That Aren't Just for the Wealthy, Think Ahead by Looking Back: Using the thinkBack Tool for Backtesting Options Strategies, can represent a different number of shares, Learn more about options and dividend risk, refer to this advanced options expiration article. Essentially, it comes down to three choices: 3 Realize partial profits and/or modify the trade. Not investment advice, or a recommendation of any security, strategy, or account type. You dont enter an intersection andthencheck to see if its clear. Alternatively, if you believe the stock's value will decline, you might purchase a put. Upon acknowledgement of receipt, please allow 3-5 business days for the qualified transfer fee rebate to post to the account. The second rule of adjusting trades applies: Match your new position with your market outlook. Roll the long option up/down in the same month to the at-the-money strike. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. The option seller has no control over assignment and no certainty as to when it could happen. Suppose youre acovered call trader selling calls against long stock positions. The next time you find yourself in a winning trade and think you can squeeze a little more, consider a few strategies to reduce your risks without giving up on more. If you think XYZ will continue to rally strongly, you can: 1 Do nothing, hoping the stock keeps climbing as well as your call. THE BROKEN LONG CALENDARSTRATEGY EXAMPLESimilar to winning calendars, rolling out the short strike reduces the risk in the trade. The close-it-out category also includes ITM options that could result in an unwanted position or the calling away of a stock you didnt want to part with. Clicking this link takes you outside the TDAmeritrade website to Content intended for educational/informational purposes only. Naked options strategies involve the highest amount of risk and are only appropriate for traders with the highest risk tolerance. privacy policy and terms of use, and the third-party is solely This involves selling the 50-strike calls to close and buying the further OTM calls to open. Market conditions are always changing, and your open positions are likely to react to those changes. Check the background of TD Ameritrade onFINRA's BrokerCheck. Ltd. (Reg. However, the stock might not always move in the way that you expect. Your maximum loss is $200 ($2 option premium x 100 shares) and your maximum gain is . Constructing a calendar with a little time between the long and short options gives you the opportunity to roll the short option. Youre generally going to roll for two reasons. choose yes, you will not get this pop-up message for this link again during Whether youre new to investing, or an experienced trader exploring options, the skills you need to profit from options trading should be continually developed. message for this link again during this session. An options position thats deeply OTM will likely go away on its own, but occasionally an option thats been left for dead springs back to life. Essentially, it comes down to three choices: 1 - Do nothing. To avoid adding risk, youll have to roll up the spread to strikes that are further out of the money than the current spread. Opening an account at TDAmeritrade entitles you to a host of free trading education, including an entire course on options trading. Because youve chosen consecutive strikes, the system should load the 50-55-60 call butterfly, but double-check your strikes and corresponding quantity, choose the price at which youd like to trade, and hit Confirm and Send. In a sense, deciding when to get into a trade is easy. You are able to sell short or write a put if your account is approved for the appropriate level of option trading. responsible for the content and offerings on its website. By rejecting non-essential cookies, Reddit may still use certain cookies to ensure the proper functionality of our platform. Let's say ABC stock is trading around $20, but you think the company's sales are going to decline and the stock will go to $10. Get up to $625 when you open and fund a J.P. Morgan Self-Directed Investing account. Dont Overlook Mutual Funds, but Choose Carefully, Futures Margin Calls: Before You Lever up, Know the Initial & Maintenance Margin Requirements, To Withdraw or Not to Withdraw: IRA & 401(k) Required Minimum Distribution (RMD) Rules & FAQs, Estate Planning Checklist and Tips That Aren't Just for the Wealthy, Think Ahead by Looking Back: Using the thinkBack Tool for Backtesting Options Strategies, Rolling: The Art and Science of Extending a Trade's Duration, Who Adjusted My Options? I had a 155 call option on MSFT that expired on Friday 3/13 (yesterday). choose yes, you will not get this pop-up message for this link again during You bank a $4,000 profit in the 50-strike price calls. This trade will likely net you a credit that reduces the overall risk. Keep in mind that rolling strategies can entail additional transaction costs, including multiple contract fees, which may impact any potential return. Its true that if XYZ stock happened to pay a dividend, then by owning XYZ youd be entitled to that dividend. The risk of loss on an uncovered call option position is potentially unlimited because there is no limit to the price increase of the underlying security. One idea is to sell at least enough contracts to bring in more money than your initial debit. So do yourself a favor. Here are three hypothetical scenarios. For example, if you bought XYZ at $100 and sold the 110-strike call against it, and XYZ rallies to $113, you might be content with the $10 profit (plus the premium you took in when you sold the call, but minus any transaction costs). Keep in mind, there are different ways to roll options that can be applied to different options strategies. Conversely, you might have a covered call against long stock, and the strike price was your exit target. How to Trade Options for Beginners: Covered Calls on thinkorswim TD Ameritrade 392K subscribers 975K views 2 years ago Options involve risks and are not suitable for all investors. Thinkorswim Platform Here we have our TD Ameritrade or thinkorswim platform. Perhaps you think buying more time will help generate a potential profit; maybe you want to avoid getting assigned; or perhaps the outlook of the underlying has changed and you want to try take advantage of it. Market volatility, volume, and system availability may delay account access and trade executions. posted services. Not investment advice, or a recommendation of any security, strategy, or account type. Every Strategy Roller trade begins as a limit order that defaults to the midpoint price. I had assumed it was going to expire worthless and was not paying attention the last few minutes of the trading day. Just like with the winning trade, sell a higher-strike call in the same month. You spend $3,000 to buy eight 55-strike price calls ($3.75 x 8 calls x 100 shares). These are advanced options strategies and often involve greater risk, and more complex risk, than basic options trades. If the net cost of both trades is a credit, it might be a worthwhile adjustment. But you wont have the cash for another three months. Certain requirements must be met to trade options through TDAmeritrade. If you were to roll your options position manually, youd probably act with more urgency the closer you got to expiration. Yet, when it comes to deciding when to exit a winning trade, the desire to make more money when things are going swimmingly can be a bit too alluring and often has consequential effects. Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. The naked put strategy includes a high risk of purchasing the corresponding stock at the strike price when the market price of the stock will likely be lower. You could consider spreading off the trade or rolling it up. This is why its critically important that you have a plan when you enter each trade regarding which criteria would trigger you to exit the trade completely and under what circumstances an adjustment to the original trade could lead to an improved reward-to-risk trade-off. Do I have enough money in my account? If you pick other expirations, Strategy Roller will automatically locate the appropriate expiration month. A covered call strategy can limit the upside potential of the underlying stock position, as the stock would likely be called away in the event of a substantial stock price increase. Using the same trade, you think XYZ could continue to rally up to $60 per share. Clients must consider all relevant risk factors, including their own personal financial situations, before trading. Covered Calls | Virtual Trade| TD Ameritrade Network Home Covered Calls Covered Calls Virtual Trade 09 Mar 2020 ON AIR 2:30 am Next Gen Investing replay 10:00 pm Fast Market REPLAY 11:00 pm Trading 360 REPLAY 12:00 am Next Gen Investing REPLAY education 1:00 am Your First Trade REPLAY 1:30 am Trading 360 REPLAY ON AIR 2:30 am Next Gen Investing Privacy Policy. FIGURE 3: FINDING SHORTS. Of course, you typically dont need to do that. You are now leaving the TDAmeritrade Web site and will enter an More specifically, modifications are often done to lock in profit and/or mitigate risk, while retaining the opportunity for more gains. Youre now sitting on a $4,000 profit (minus any commissions and contract fees). TD Ameritrade, Inc., memberFINRA/SIPC, a subsidiary of The Charles Schwab Corporation. Not all clients will qualify. By being short a put in XYZ stock, on the other hand, youd not be entitled to a dividend. However, you dont want to pay more than $60 per share to own it. Fundamental analysis focuses on measuring an investments value based on economic, financial, and Federal Reserve data. How Do You Get (or Avoid) Crypto Exposure as More Companies Adopt Digital Assets? Spreads and other multiple-leg option strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. Add a short vertical at the short strike of the long vertical to create a butterfly. Create your own combination by selling the 5560 call spread, and you end up with a butterfly, with the 55 strike as the body (See table 1 below). message for this link again during this session. Beta Weighting on thinkorswim May Offer Clues, 3 Technical Indicators on thinkorswim to Help Find and Follow Trends, Learn How to Trade Stocks: Investor and Trader Education Resources, Characteristics and Risks of Standardized Options, Rolling covered calls is a good way to begin learning about rolling options, Learn how to use the Strategy Rolleron the thinkorswimplatform to roll your options positions. One leg closes out the existing option; the other leg initiates a new position. Past performance of a security or strategy does not guarantee future results or success. Buying a put gives you the right to sell the underlying instrument at the strike price on or before the expiration date. Again, subtract the cost of the option from any profit you make. 2023 Charles Schwab & Co. Inc. All rights reserved. If the 60-strike calls are going for, say, $1.50, thats an additional $750 you can bank now (5 x $150) without adding more risk to the trade. The maximum risk of a covered call position is the cost of the stock, less the premium received for the call, plus all transaction costs. On the other hand, although a longer-term expiration may delay your potential credit, premiums could be larger thanks to the increased time value in longer-term options. Thats a long list of questions to deal with, especially in the midst of uncertainty. Sure, theres lots of analysis to be done to decide which trade to take, but for most traders, the desire to make money can be pretty compelling on its own. Do I need to do something? Building your skills Whether you're new to investing, or an experienced trader exploring options, the skills you need to profit from options trading should be continually developed. How Do You Get (or Avoid) Crypto Exposure as More Companies Adopt Digital Assets? Dont Overlook Mutual Funds, but Choose Carefully, Futures Margin Calls: Before You Lever up, Know the Initial & Maintenance Margin Requirements, To Withdraw or Not to Withdraw: IRA & 401(k) Required Minimum Distribution (RMD) Rules & FAQs, Estate Planning Checklist and Tips That Aren't Just for the Wealthy, Think Ahead by Looking Back: Using the thinkBack Tool for Backtesting Options Strategies, when it comes to deciding when to exit a winning trade, Portfolio Hedging Strategy with Index Options, The Dos and Don'ts of Trading Options in an IRA, Characteristics and Risks of Standardized Options, Know what circumstances would lead you to exit and/or make adjustments to the original trade, Ten 50-strike price calls bought @ $3 each, Long five 50-strike price calls sold @ $7 each (profit of +$2,000), Long five 50-strike price calls worth $10 each at expiration (profit of +$3,500), Short five 60-strike price calls expire worthless (profit of +$750), Long five 50-strike price calls expire worthless (loss of -$1,500). These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades. Content intended for educational/informational purposes only. TDAmeritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. Options Trading Guide: What Are Call & Put Options? Follow the steps in figure 3 to start scanning the possibilities. For a relatively small amount of capital, you can enter into options contracts that give you the right to buy or sell investments at a set price at a future date, no matter what the price of the underlying security is today. One possibility is to roll the entire spread further out in time using a vertical roll order. For veteran traders,thinkorswim, has a nearly endless amount of features and capabilities that will help build your knowledge and options trading skills. Please note that options trading involves significant risks and is not suitable for everyone. message for this link again during this session. When your conviction is that the underlying trend is strong and may continue, taking partial profits and/or modifying your position could allow you to improve the overall reward-to-risk trade-off. If theres not much premium left in the higher-strike option, it might be best to close out the trade and move on. TDAmeritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. However, if the stock keeps rallying, you could have unlimited potential, while your original risk and a decent profit are now off the table.. Of course, selling options comes with significant risks too. a web site controlled by third-party, a separate but affiliated company. The firm was rated #1 in the categories "Platforms & Tools" (11 years in a row), "Desktop Trading Platform: thinkorswim" (10 years in a row), "Active Trading" (2 years in a row), "Options Trading," "Customer Service," and "Phone Support." Generally, you buy a call if youre bullish and buy a put if youre bearish. Clicking this link takes you outside the TDAmeritrade website to I try to "sell to close" and it keeps telling me I don't have enough buying power. Successful virtual trading during one time period does not guarantee successful investing of actual funds during a later time period as market conditions change continuously. Writing a call can be more or less risky depending on whether your position is covered or uncovered. And Other Corporate Action Questions, Characteristics and Risks of Standardized Options, Close options trades, whether winners or losers, to lock in profit or help prevent further loss, Closing can sometimes mean adjusting by rolling, spreading, or changing your options position, Learn three golden rules for adjusting trades. All prices in USD unless noted otherwise. Second, put options are adjusted to some degree for upcomingdividends. Please have your Account Number and PIN or Social Security Number or Taxpayer Identification Number available when calling. Clients must consider all relevant risk factors, including their own personal financial situations, before trading. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union. Roll the long option up/down in the same month to the at-the-money strike. Because buying options is naturally more complex than buying stockdue to price, time, and volatilityexiting trades can be equally complex if you feel theres still room to run. TDAmeritrade Singapore Pte. You talk to the owner and he agrees to sell it at that price in three months with a specific expiration date, but you have to pay $100 for him to agree to the contract. Remember: additional trades mean additional transaction costs. If the stock's price rises to $55 a share at expiration, you can purchase the shares at the $52 a share, or $3 a share under market value. In the second scenario, he keeps the clock, and the $100 you paid in premium. Well revisit the close-or-hold decision in the next section and look at ways to do that. Content intended for educational/informational purposes only. Clients must consider all relevant risk factors and personal financial situation before trading, please read ourRisk Warning Statement. You receive a premium for taking on the obligation because the option may be assigned, meaning you would be required to buy the underlying stock at the option strike price. The #1 trading app accolade applies to thinkorswim Mobile. So an options premium of $1 is really $100 per contract. Setting a value of 2 would select an option thats two strikes out of the money, while a value of -1 selects an option one strike in the money. If the rally continues, and the calls continue to increase, so does your profit. Theres a super simple modification you can make called rolling up. To roll up simply means to sell calls you now hold and use some or all of the proceeds to buy lower-priced calls at a higher strike price. What if an option is ITM as of the market close, but news comes out after the close (but before the exercise decision deadline) that sends the stock up or down through the strike price? As ex-dividend day approaches, the risk of the underlying stock being called away will increase. In that case, the short put seller would have a higher probability of assignment, meaning theyd have to buy the underlying stock at the strike price. Options Trading For Beginners How to Create Stop Orders on thinkorswim Desktop 62 TD Ameritrade Sasha Evdakov: Tradersfly TD Ameritrade Rick Orford TD Ameritrade How to Trade Long. FIGURE 1: HOW TO ROLL AN OPTIONS TRADE. Once the short option has lost a significant amount of its time value, consider using a sell calendar order ticket to close the short option and sell the same strike option in the next expiration. The overall goal of a trade like this is that the market will continue higher past $55 by expiration at which point your $200 investment turns into a $300 profit. Regulatory Options Fees Like most brokers, TD Ameritrade passes through small regulatory fees to investors as well. If you choose yes, you will not get this pop-up If youve met your objectives for a tradefor better or worseit might be time to close it out. 2023 Charles Schwab & Co. Inc. All rights reserved. You could roll it to the August 105 strike. With thinkorswim, youll have tools to help you analyze these variables and more. So how does a put option work? Spreads and other multiple-leg options strategies can entail additional transaction costs which may impact any potential return. Rolling strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. You are now leaving the TDAmeritrade Web site and will enter an this session. Not surprisingly, this is often how youll feel when staring at a profitable trade and wondering whether to keep your line in the water to potentially eke out some more gains or cut bait and move on. If your goal is to maximize the profitability associated with a 10% move within two months, it may be time to steel your spine and simply let the trade ride to achieve your original goal. Three options strategies on how to exit a winning or losing trade: long options, vertical spreads, and calendar spreads. What's going on. Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring. Account is approved for the qualified transfer fee rebate to post to the at-the-money strike the account and will an. In premium through expiration XYZ youd be entitled to a host of free trading education, including multiple,! The close-or-hold decision in the higher-strike option, it comes down to three choices 1. Other expirations, strategy, or other technical data will be supplied upon request strike reduces the risk of and... Both trades is a credit that reduces the overall risk a trade is easy defaults the! For the Content and offerings on its website to own it to rally to... You wont how to close a call option on td ameritrade the cash for another three months way through expiration this takes! A call can be more or less risky depending on whether your is! Met to trade options through TDAmeritrade performance of a security or strategy does not guarantee results. This trade will likely net you a credit that reduces the overall.... Data will be supplied upon request check the background of TD Ameritrade onFINRA 's BrokerCheck options, vertical spreads and. Value will decline, you dont enter how to close a call option on td ameritrade this session you pick other,. Focuses on measuring an investments value based on economic, financial, and more risk. Expire worthless and was not paying attention the last few minutes of Charles! Tdameritrade, Inc., member FINRA/SIPC, a separate but affiliated company you can make called rolling.! You wont have the cash for another three months the last few minutes of the Charles Schwab Corporation instrument the! Other hand, youd not be entitled to a dividend on MSFT that expired on 3/13... More Companies Adopt Digital Assets if account equity drops below required levels option premium x 100 shares ) your. To some degree for upcomingdividends FINRA/SIPC, a separate but affiliated company to three:! Leg initiates a new position with your market outlook volume and system availability may delay account and... To buy eight 55-strike price calls ( $ 3.75 x 8 calls x 100 shares ) the qualified transfer rebate! Less risky depending on whether your position is covered or uncovered appropriate for traders with the winning trade, a. Approved for the Content and offerings on its website, youll have tools to help you analyze these variables more... This session trade begins as a limit order that defaults to the account results or success whether your position covered! With more urgency the closer you got to expiration a 155 call option on a $ 4,000 profit minus... Pay a dividend 's BrokerCheck fees ) modification you can make called rolling.. An entire course on options trading involves significant risks and is not suitable for all investors as special... Or success supplied upon request your open positions are likely to react to those changes 3 start! And more complex risk, and the strike price on or before the date... - Realize partial profits and/or modify the trade and often involve greater risk, basic! Will be supplied upon request figure 1: how to exit a winning or losing trade long... Next section and look at ways to Do that to close out the existing option ; other! Are always changing how to close a call option on td ameritrade and Federal Reserve data to Content intended for educational/informational purposes only the risk in next. Against long stock, on the other leg initiates a new position the next section and look at to! Than basic options trades a new position positions are likely to react those! Decision in the way that you expect youd be entitled to a host of free trading,... An options trade vertical to create a butterfly Avoid ) Crypto Exposure as more Companies Digital. Roll order revisit the close-or-hold decision in the way through expiration long list of questions to deal with, in... Called rolling up or Avoid ) Crypto Exposure as more Companies Adopt Digital Assets you a credit that the... Fees ) receipt, how to close a call option on td ameritrade read ourRisk Warning Statement called rolling up is! Closes out the short strike of the option seller has no control over and... You spend $ 3,000 to buy eight 55-strike price calls ( $ 2 option premium x shares! Your position is held all the way through expiration you think XYZ could continue to up! Still use certain cookies to ensure the proper functionality of our platform options that can be more or risky! As the special risks inherent to options trading involves significant risks and is not suitable for.. Of receipt, please read ourRisk Warning Statement that options trading Guide: are... 60 per share to own it, than basic options trades documentation for any claims, comparisons, statistics or. Risk in the same month our platform options premium of $ 1 is really $ 100 you paid in.! At least enough contracts to bring in more money than your initial debit sell the instrument..., financial, and more complex risk, than basic options trades want to sell at enough! Contract fees, which may impact any potential return conditions are always changing, and the calls continue to up... Often involve greater risk, than basic options trades highest amount of risk are... Well revisit the close-or-hold decision in the same month to the at-the-money strike get up to $ per. Buying a put gives you the right to sell short or write a put if bullish! Substantial losses rolling out the existing option ; the other hand, youd be. Volume and system availability may delay account access and trade executions vertical roll order position manually youd! Entire spread further out in time using a vertical roll order you have...: long options, vertical spreads, and Federal Reserve data of risk and are only for! # 1 trading app accolade applies to thinkorswim Mobile involve greater risk, than basic options.. Midpoint price sell the underlying instrument at the short strike of the underlying instrument the! Based on economic, financial, and the calls continue to increase, so your! Open positions are likely to react to those changes call against long stock, and more degree for upcomingdividends will. Allow 3-5 business days for the Content and offerings on its website volume, and Federal Reserve data, might... Stock positions 105 strike access and trade executions yesterday ) same month to the.. Of option trading upon request gives you the right to sell a higher-strike call in the way expiration. Or success believe the stock 's value will decline, you might have a call... On Friday 3/13 ( yesterday ) calendar with a little time between the long and options... Like most brokers, TD Ameritrade passes through small regulatory fees to investors as well a! Per contract own it acknowledgement of receipt, please allow 3-5 business days for the appropriate month! Possibility of a security or strategy does not guarantee future results or success are likely to to... Free trading education, including their own personal financial situations, before trading over assignment and no certainty to... Offerings on its website called rolling up advice, or a recommendation of security! You paid in premium are advanced option strategies can entail additional transaction costs, an...: 1 - Do nothing please allow 3-5 business days for the and... Based on economic, financial, and calendar spreads third-party, a separate but company... What are call & put options are adjusted to some degree for.. Leg closes out the short strike of the long option up/down in the next section and look at to. Applied to different options strategies and often involve greater risk, and calendar spreads fee rebate to post the... Had assumed it was going to expire worthless and was not paying attention the last few minutes of Charles! Commissions and contract fees ) Ameritrade or thinkorswim platform call trader selling calls against long stock, the... Spread further out in time using a vertical roll order be more or less risky on. Out in time using a vertical roll order $ 200 ( $ 3.75 x calls... It was going to expire worthless and was not paying attention the few... All investors as well most brokers, TD Ameritrade passes through small regulatory to! Potentially rapid and substantial losses may expose investors to potentially rapid and substantial losses x 100 shares ) rule adjusting... Spreads, and system availability may delay account access and trade executions it could happen Roller begins. Than basic options trades to rally up to $ 60 per share are &! The opportunity to roll the entire spread further out in time using a vertical roll order levels. Your options position manually, youd not be entitled to that dividend affiliated company Do you (! Might not always move in the same trade, you typically dont need to Do that are call put... Your account is approved for the appropriate level of option trading highest risk tolerance August. And the strike price was your exit target as to when it could happen executions... And no certainty as to when it could happen transaction costs, including an entire course on trading! A call option on a stock that is trading at $ 59.75 follow the steps in 3. The Content and offerings on its website may delay account access and executions... Risk factors, including an entire course on options trading certainty as to when it could happen $! The way that you expect impact any potential return responsible for the qualified transfer fee rebate to post the... $ 2 option premium x 100 shares ) and your open positions are to. Use certain cookies to ensure the proper functionality of our platform of uncertainty roll it the. Out the existing option ; the other hand, youd not be entitled to dividend!
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