Very Dubious Pricing of Copper Options

Discussion in 'Commodity Futures' started by comintel, Sep 7, 2011.

  1. Both the exchange and Interactive Brokers seem to use extremely dubious pricing of copper options.

    For example, the close in December Options was supposedly:

    5.1 call .0065
    5.2 call .0040
    5.25 call .0030
    5.3 call .0040


    Oh really!

    Of course they are just using the last trade for the close but should they do that?

    The reason for that 5.3 call being at .0040, a 60% increase over the prior close, is that some desperate person was actually bidding that amount, even though copper had just fallen sharply, I sold him the options at his price. Maybe I should have asked for .0050.

    The market in that month is very thin and it is practically impossible to get fills at reasonable prices.

    Also IB is currently marking these to, for example:

    5.3 call .00753

    Which is totally ridiculous since it was .0025 a few days when copper was higher.

    I know, volatility is higher, but not that much higher. I realize that the actual reason is that IB uses a (defective) pricing model for deferred month options.

    It does not cause me problems, but I am wondering if other commodity option pricing software is any better?
  2. I don't know where you are getting those numbers from.

    The COMEX settlement values for DEC 2011 Copper call options are:

    5.10 .0130
    5.20 .0095
    5.25 .0080
    5.30 .0065

    Call prices from the 4.01 and lower strike prices were down on the day and from the 4.04 and higher strike prices to 5.75 were up on the day.

    Looks like strange price moves, but strange things happen.
  3. OK I was getting the supposed close values from IB's "Close" price shown in TWS but they were wrong. They have now updated them to show the values you cite.

    Well, as you point out, those are at least monotonic but still very strange from a logical point of view.

    Copper drops sharply yesterday but far out of the money call prices more than double?

    I realize it is all a matter of implied volatility at different strikes but I am doubting the models that they are using.
  4. Not to worry though, copper is rallying now so call premiums will be falling back down again .:)
  5. That's what happens when you sell garbage and they re-price the wings in a demand for.... wings! People are selling atm and buying that shit you sold cheap.

    Leave the ego for the trading boards and not the actual trading. They don't mix. A "bad trader" can be defined by their predilection for selling garbage.

    Gloating about picking off a guy only to find out from the settlement that you're down by >50% on marks? lol.
  6. So we see.

    But I do not agree with you on the price being too cheap.

    We will see it come right back in as copper rises back up a little (which is all it is going to do).
  7. Who cares what you believe? The markets says you're wrong to the tune of the 50% loss you're taking at the moment. Trade one lots and you'll can avoid all of that path-dependent unpleasantness. lol again.
  8. Actually I was adding to my position which is small and at a profit overall.

    I am surprised that you are not aware that everything is a function of the rest of one's portfolio and the relative scale of the position.

    Who cares? I am making a prediction. If you have no views on the market, then you are trading differently from me. That's ok, there's room for all.
  9. Sure you did.
  10. No, I never touch 'em, but we're talking about you.... your level of experience necessitated a wake-up call from Jeb on the fact that you were down 50% on marks when you thought you were profitable.
    #10     Sep 7, 2011