I'm looking at POT options, Leaps and short term, and most of them seem to have negative time value today, at least based on the close. How is this possible? It can't be. I mean an 80 January call, with the stock at 115, trades for like 25. Can't be. Or an I stoned? Bunch of options like that. Stock was up 5 points today and most of the options collapsed. I understand that can happen with volatility, but this seems off. I mean some of the short-term options have more time value in them, if they have time-value in them, than the Leaps? Stale prices? What's going on?
When you speak of time value, think of it as an absolute value. Which option loses more with time passing? Short or long term? Of course short. Think of it like this, short term options will lose most (time value is larger number) than long term option.
But how can an 80 call trade at 25 when the underlying is at 115 (regardless how much time left to expiration)? It is an instant arbitrage position, no? Buy the call at 25, exercise it, get stock at 80 add the 25 you paid -- and you have a basis of 105 for a stock selling at 115, an instant 10 point profit. My question is why are so many -- not all -- of the POT options listed this way. It has to be a glitch, stale prices, my bad math, something; it can't be arbitrage for the masses.
The closing price is the last trade which could have occurred at any time - near the close, this morning, yesterday. It's not reflective of actual prices. For example, with POT closing at 114.98, the November 80 closed at $24.90 which is what leads you to think that they have negative time value. In reality, the closing B/A was $34.50-35.80 which is what you would expect for an option so deep ITM. With the stock reporting, IV contracting and the stock being up over $5, illiquid options get funky looking - but they're not.
Any services provide closing B/A or compute their accounts this way? I use IB and have a bunch of Leaps and the swings in my account balance daily are like 10 percent sometimes because of this.