Can someone look at BIDU today and the Dec. 370 calls. Bidu is basically flat today up maybe .10 at the close The December 370 calls are up way over that. I know the last call price is quoted at the ask ($10), but the bid is even up way over that. This option is supposed to have a delta of about .2, so what could cause this?
(1) Two words------"volatility expansion". It looks like traders are rolling positions up-and-out, i.e. from at-the-money strikes to out-of-the-money strikes AND from short-dated to longer-dated contract months. The stuff being bought went up. The stuff being sold went down. The out-of-the-money December strike-prices benefited the most. (2) TORONTO----Thank the guy for the sell-signal.
This quote is dead on. I would just like to add... take it from my experience... there are a LOT of ways to lose money trading options. If you want to dabble make sure you dabble small. (Experience is the best teacher, but it can cause a lot of losses) Also, until you know it's possible to buy calls, have the price of the stock go up just as you forcasted.. and then still not make any money... then you REALLY need to watch and learn rather than trade and learn. Otherwise... the pain will be great. Just one humble trader to another.
First of all, the "change" column in option quotes is completely misleading and should be ignored. Options don't trade nearly often enough, and the "previous close" (i.e. the last trade before today) may have occurred weeks ago. Even if the last trade was yesterday, it may not have been at the end of the day, which will also skew the number. If you happen to know both the bid/ask at 4 PM yesterday and the bid/ask at 4 PM today, and they're farther apart than you expect from delta, now we can look at options fundamentals. IV expansion is the likely culprit, and it would cause both puts and calls to get more expensive. But if you're trading, you want to know why IV is expanding. Did the company say they were going to announce big news soon? Earnings? Major court decision? New product? Higher IV should make you think about these upcoming events that will move the stock, and whether you want to bet on them. In short, volatility expansion isn't your answer. It's your question.
Most of you have your perspective a bit skewed. The price went up because people bought the call. Volatility expansion is a result of people bidding up the price. As to why someone would bid up the price, that could be for any reason under the sun.
Panzer thatâs not quite correct the price could have gone up with no volume simply because there was an IV increase in other series in that month or a general rise in the IV on all series. No one has to buy that series in particular for it to go up. If that particular strike (both the call and put in that strike) is out of line with the other strikes around it then it may be a short term effect from some large opening buy orders. More likely IV expanded and the rising tide lifted all boats. âSomeoneâ would not have the depth to bid it up and have the market leave it up there, it would take more then a single buyer, in something like BIDU
If the call is quoted higher then implied volatility has expanded, but until someone buys that call, actual volatility has gone no where. Volatility expansion could be only in the mind of the market makers. If someone agrees with their assessment, and pays the ask, only then has volatilty actually expanded. I suppose it's a chicken and egg problem, but I like to view it as volatility following price. Of course this always leads one to wonder if the market makers have insider information that the rest of us don't. Probably not, more likely it is the customer who has the insider information. Market makers probably just do better research.
More like a firm has some good info. The thing about it these days there are virtually NO "locals" left and all the prices the mm's spit out are controlled by their management and fed to them or just disseminated from off the floor electronically. I would say that market makers dont do any research at all or very little and they've been that way for a long time. They simply trade for "edge" or whats left of edge these days with penny markets and multi listing. Its not really a market makers job to speculate and take big directional bets.