Why some puts with lower strike have higher premiums than higher strike?

Discussion in 'Options' started by elitetradesman, Oct 19, 2011.

  1. Notice in the attached option chain how some deep out-of-money puts have much higher premiums than those with higher strike.

    Can you explain why?
  2. ASE1245


    The options your looking at come from strikes that trade with a dividend or special adjustment. After these adjustments, very few public orders come in except to close. Your looking at the last sale, not the bid/ask average, which is where most end of day and midday pricing come from. Also, if an option meets certain criteria, to save on bandwidth, a market maker is not required to post a market, so the last sale/current value, does not change even when the stock price changes.
  3. FSU


    Assuming you are talking about the markets, not the last price. The 12 thru 7 strikes include a cash component in the options.
  4. Yeah, that's what I'm talking about. Could you elaborate more on the cash component?
  5. ASE1245


  6. No, I'm talking about the bid and ask of puts with strike price 12 or less.
  7. Are you saying stock options can have both cash and stocks as underlying assets? I thought only index options are cash-based?

    Also, from the option chain, how'd figure that the options have a cash component and its exact amount?

  8. FSU


    Go to www.theocc.com This is the Option Clearing Corp site. Type in BMO and you will see memos on this.

    When I pull up the quote these strikes are listed as BMO1 with a description of the cash component..
  9. ASE1245


    The 12 to 7 puts are: 4.5/5, 3.5/4, 2.6/2.95, 1.60/1.95, .70/.85, .15/.40. I don't see what your looking at. Ignore the last sale.

    This option has strikes that are exercised for 100 shares, and strikes the are 100 shares plus cash. Any non regular dividend is creates an option that includes the price of the special dividend or distribution. That's why the 70 puts are 11.30/14 and the 12 puts are 4.50/5.00. On the platform I'm looking at, the stock is 57.56 and the dec 6 calls are 1.15/1.50 and include $35.29, which looks off.

    I just looked it up on the OCC website and the options are for:

    The underlying price for BMO1/2BMO1 will be determined as follows:
    BMO1 = .12 (BMO) + cash in lieu of .0057 fractional BMO shares
  10. Thanks, FSU and ASE1245.

    It's all clear now.
    #10     Oct 19, 2011