A notice to Noobs regarding Expiration friday.

Discussion in 'Options' started by KINGOFSHORTS, Jul 16, 2009.

  1. When you're short an option its not the person who bought it from you who directly effects whether or not you get assigned. When an option is exercised the entire pool of accounts who is short that option has the potential to be assigned, its a random selection.

    On a stock with a 6 dollar range on expiration day I dont believe that the ATM strike trades for a dime near the close. If you had pin risk you'd be a fool to not close it down for a nickel or a dime and if you were long that strike you'd be a fool to close it for a dime or a nickel.

    Dont take this the wrong way I am not calling you a liar I just have a lot of years in the business and on a stock like GOOG or another with that kind of range a dime is too cheap.
     
    #11     Jul 17, 2009
  2. SForce

    SForce

    I mean.. this is none of my business or anything ... but look up GOPGF. .. I'll save you the trouble..

    430 call - Google closed at 430.25 and bid ask is .05/.10

    Just sayin.
     
    #12     Jul 17, 2009
  3. Think about this:

    Who cares what the closing price is. If I'm a market maker and you want be to buy your long call option, I must have a reasonable prospect of selling the stock to earn a profit. I'm not paying 10 cents for that call option unless the stock is 430.10 bid, or higher.

    The closing price is meaningless once it's after hours and I can no longer sell stock against my calls.

    Why would I, or any sane person, want to buy the calls, exercise them, and then hope to be able to get a small profit next Monday?

    No one would do that. The only people who buy those options (in the scenario you describe) are those who are short them and prefer NOT to be assigned. Thus, they cover.

    Mark
     
    #13     Jul 17, 2009
  4. we're missing something since I would buy every single call offered at a dime and short the stock at 30 cents and take the 20 cent profit, and I am not the only one who would do that.
     
    #14     Jul 17, 2009
  5. donnap

    donnap

    No, you pay interest for borrowing stock. Call prices discount that.

    Last sale looks like .15 on TWS
     
    #15     Jul 17, 2009
  6. Donna, I used the quotes the OP listed for the option and the stock to make a point that a dime is not the correct price.

    If I bought every one of those calls I could for a dime and sold the stock at .30 the cost to borrow that stock and deilver it via exercise is less than a penny there are 19 other cents of pure P and every other professional and their brother would be doing it.
     
    #16     Jul 17, 2009
  7. donnap

    donnap

    OK, thanks xflat. I was thinking that the cost to borrow was higher.
     
    #17     Jul 17, 2009
  8. SForce

    SForce

    I didn't really pay much attention to whatever you were saying, I was just pointing out to whoever claimed the ATMs would not be priced at .05/.10 at any time that in fact they were. Past that I could care less..
     
    #18     Jul 17, 2009
  9. donnap

    donnap

    Ah... are you using yahoo quotes? You should have been using real time quotes.

    That quote isn't accurate.
     
    #19     Jul 17, 2009
  10. Just a question: Do you people get liqueured-up and enter a trade with an unfamiliar instrument after reading a book or a blog?

    I'm serious.
     
    #20     Jul 17, 2009