5 replies to this topic

[S.I.M.O.N.]

I wanted to put on a longer term hedge/spread on friday using dia options but the prices made no sense to me(my "uniformed mind" again). I wanted to buy the Jan09 100 puts selling for $2.6 and the Jan 09 140 calls for $3.7. Looking at those prices, with the dia at 121 essentially in the middle of these two option strikes, why the 55% extra premium on calls? Are put writers a bunch of fools? Are they thinking like bears and trading like donkeys? Any option writers out there, what's the deal here? Why the extra premium on calls in a confirmed bear mkt? Aren't you guys worried about the Dow collapsing to 5K, those 100 strike puts gonna go "to da moon"???? Yours truly, A Clueless Bull

[Alton]

I wanted to buy the Jan09 100 puts selling for $2.6 and the Jan 09 140 calls for $3.7.
Looking at those prices, with the dia at 121 essentially in the middle of these two option strikes,
why the 55% extra premium on calls?
....
Yours truly,
A Clueless Bull

Hi PNF,
Don't think I can give a definite answer to your 55% question, but I do know that sometimes "implied volitility" (or lack) comes from an issue being so thinly traded that the option price hasn't caught up with the movement in the underlying issue.

I checked at the CBOE site and they showed no trades (zero, naught, zip) for the day on either of those issues at the expiration dates and strike prices you mentioned. Although supply and demand may be the real answer, I wonder if the bid and ask prices are current. I think they have to have a number to go in the display, but wonder if you could actually get the prices listed.

Yours truly,
Just Clueless

PS - Sorry but I don't trade options...just have picked up stuff along the way. One thing is that CBOE seems not to list volume from all sources (although I think they include all of the open interest) so there might have been trades somewhere, but the date and strikes are a long way off, and pretty far distant.

[vitaminm]

I wanted to put on a longer term hedge/spread on friday using dia options but the
prices made no sense to me(my "uniformed mind" again).

I wanted to buy the Jan09 100 puts selling for $2.6 and the Jan 09 140 calls for $3.7.
Looking at those prices, with the dia at 121 essentially in the middle of these two option strikes,
why the 55% extra premium on calls?


Are put writers a bunch of fools?
Are they thinking like bears and trading like donkeys?

Any option writers out there, what's the deal here?
Why the extra premium on calls in a confirmed bear mkt?

Aren't you guys worried about the Dow collapsing to 5K, those 100 strike puts gonna go
"to da moon"????

Yours truly,
A Clueless Bull

Dia close at 121.o5

09/100 put @2.45 (121.05-100=21.05)
09/140 call @3.80 (121.05+21.05=142.05)

Theoritically 09/142 call should be equal to 09/100put .But based on supply/demand they vary.

http://finance.yahoo...IA&m=2009-01-16

Look at the put/call premiums at near closing price to same strike price @121.

http://finance.yahoo...?s=DIA&k=121.00

[arbman]

There as much put writing as much as buying or capitalizing on the premium decay actually, especially in the index options. In other words, the average premiums are actually higher in the calls than the puts at the moment despite the higher total dollar cost and volume in the put contracts. Many firms are betting that the worst is actually over or implying that the directional trading with these high premiums is actually low odds play, while the customers still appear to be a bit biased for the directional plays... - kisa

[OEXCHAOS]

Guys, Unless you're getting a REAL quote from the market maker, those quotes are meaningless. I used to do way OTM spreads all the time. The quotes on the machine in no way reflected reality. The only way to figure that out was to put an order in. I'd usually ask my broker what the real bid/ask was and then enter my order as a spread at something slightly better than splitting the B/A difference for both legs of the spread. Basically, any quote you see for a less active option is just fiction. It means nothing. Check with the market maker. Mark

[greenie]

The quotes are not wrong. They are clearly suggesting that Dow will reach about 13,600 by July'07 and 20,000 in next two years.