I am a bit paranoid so can someone please confirm: Stock is at $20 Strike: $10 ITM CALL is worth bid: $9.10 - ask: $10.20 So we know the ITM is $10 If I sell this call (Assuming it even has the liquidity) - at the market, it is impossible for me to sell below $10 correct? Since it's $10 ITM. The $9.10 bid there just for show? Shouldn't it be a $10 bid?
IMO: No! You may receive the BID if you place a Market order. Also, since you may not be able to guarantee that observed BID will persist until your Market order is executed, the BID can change! (A large sale, can exhaust the observed BIDs, resulting in your fill becoming lower).
I just spoke to my brokerage today and they told me that they always "tried" to get the best price but if I placed a market order to buy very likely I would get the ask and to sell I would get the bid. They recommended I should always try to place limit orders. I placed a trade today to buy at $1.82 when the bid ask were $1.81 and 1.82 and I actually paid $1.81 so indeed they got me a price better than my limit.
That's completely different, I doubt that 0.01 was ITM. I am talking about options with a bid less than intrinsic value which makes no sense.
if you place a sell "at the market" order and the highest bid is $9.10 you will probably get that price. I think the reason the bid is less than intrinsic is perhaps it is thinly traded and likely the only buyer for it is the market maker. The other reason could be it is a very volatile stock that moves up and down a lot so the market maker wants his margin of safety.
Yes I had encountered the same when me options appreciated and became deepITM. I always put in a limit sell order (if I own) above intrinsic and went from there.
RGLD: I'm guessing you are observing options on non-liquid products, or observing after market bid/asked prices. A while back, I was trading long CALL options on TUR (ETF), and seemed at the time to be "liquid enough", then one day saw the BID prices during the day drop to more than $2 under the Intrinsic value. After regaining my composure decided to put in a limit order for a "reasonable" exit price, which filled the following day. I don't do long Calls on TUR anymore. -- The trade was still very profitable, but that huge gap in the BID/ASK during the day causes skid marks for some of us! ;-(
Options bid below intrinsic is very common. Even options with decent open interest . Fact is , if you cant get someone to trade at a fair price, you will have to exercise to close the trade.