Strike price difference

Discussion in 'Options' started by clarodina, Dec 25, 2010.

  1. How does the exchange decide the strike price different? Why is that some stk have reduced strike price different? Because of historical volatility?
  2. why is the closing price of option are different from the buy sell price for less liquid stk?
    Some stk has 2 dollar for closing bu the buy sell price are 2.1 and 2.2 respectively.
    Isn't the closing should be either the buy or sell price whichever trade?
  3. a trade could be made between the bid/ this what you mean?
  4. Assuming the closing price is using trade price than the closing price should be either the buy or sell price and not some other price. However for less liquuid stk options the closing price is so much different from the buy sell price. Or is this data error? And how does the exchange determine the strike price different? Or is 0 - 30 price stk would have 1 dollar different for strike price 30 - 100 2.5 dollar different and >100 is 5 dollar different?
  5. tomk96


    generally strike prices are every 5 dollars. under 10 or 20, they allow 2.5 dollar increments. this is for stocks. there have been various pilot programs over the years that have increased the number of strikes. i'm not sure if all stock options trade in pennies yet, but that was also rolled out as a pilot program that keeps getting extended.

    regarding the marks, i'm not sure what data you are looking at. the closing mark shouldn't be outside of the bid/ask. the b/a may be extra wide on the close tho.
  6. There are general, but flexible rules the exchanges use to set up the differences in strike prices.

    I trade options only on the indexes, and I frequently see strikes added in high volume areas. I need to pay careful attention as the vertical credit spreads I sell are not always adjacent.

    In fact, just about anyone can ask the exchange to add a strike. It may not attract much volume, but you can brag that that strike was at your request. :)
  7. how does the exchange determine adjustment of strike different? 5 dollar different to 2.5 dollar different. Do they use volatility to adjust the strike different?
  8. tomk96


    generally stock price. i think a stock under $20 will have 2.50 increments.
  9. MTE


    It depends on what you mean by closing price, but generally, it is the last trade price, which can be a few seconds old or a few hours old, and if there were no trades between the last trade and the closing then the bid and ask can be significantly different from the last trade price as the market may have moved during that time. This is precisely the reason that you should always look at the current bid/ask and not last trade or any other price.
  10. I don't know about stocks, but for stuff like Eurodollars/trsy futs, the settlement px for an option might have nothing to do with either bid/ask px or last trade px.
    #10     Jan 14, 2011