Who is selling these penny options?

Discussion in 'Options' started by noob_trad3r, May 15, 2009.

  1. I noticed today on options expiration a whole bunch 1-2 penny contracts traded with a volume of 1205

    For GE strike price of 14 that expire today.

    So why would someone sell options for 1 penny today and who does this? I guess there is money to be made doing this but it seems like a lot of risk to only make a few cents.
     
  2. Some people are long and are happy to get out for anything.

    Some people are short and are willing to pay a penny - just to avoid all risk.

    Some investors are not allowed to sell naked short options and pay that penny to cover the May option so they are free to roll their position (perhaps a covered call) into a June position. By trading Friday, rather than waiting until Monday, they know the price they are receiving when selling the June options

    Mark
     
  3. what mark said, dont assume they are naked short the contract. They could be long/short the underlying, and just trying to hedge intraday or a host of other reasons using it as PART of their position.

    i agree it doesnt make much sense for a retail to solely sell the contract for a few pennies.
     
  4. Thanks, that makes more sense.
     
  5. drcha

    drcha

    I have been told by Alex Jacobsen that some insurance companies have been known to do this. They are well-capitalized. I hope you are not thinking of trying this on a grand scale--hopefully not on ANY scale.
     
  6. He never suggested he would try it. He was wondering why these options trade.

    Mark
     
  7. Dioda

    Dioda

    rich people
     
  8. If you are going to quote me at least spell me name correctly. Insurance companies don't commonly trade equities. What I have said is selling puts is like selling insurance. There are numerous funds that will sell short term low priced options, but not one and two penny options. Those are most likely closing trades or cabinet closes which are done at a penny. It is very unlikely they are opening trades.