Quick question:

Person A buys Qty 10 June 15 Calls for Stock X @ $15 for $100

Stock X closes at $13 on June 15.

Question:

Person A looses $100 or does he have to pay (15-13)*1000 ?

.

I'll preface this by saying I do understand the basic (stressing basics) of option pricing and theory.

Recently, some heavily shorted names have seen their prices run up in their prices (and also crash sporadically). Focusing on these companies fundamentals, I came up with a fair price with margin.

And because these names are so heavily shorted (or followed by retail investors), the option prices start to get wacky (borrowing becomes harder). Obviously I'd like to throw straddles on (with some bearish bias), but how do you options traders decide on a strategy based off the option prices when you have a fundamental price point in line? Or is it entirely based off short term volatility and time convexity?

I'm taking a licensing test, which I failed by one point the first time, and one of the things I was bad at was these bid-ask spreads. So say a stock is quoted at 10.00-10.25 10x10, I know 10 is the "bid," 10.25 is the "ask," but does this mean the market maker is selling 1000 shares at 10 dollars or 10.25? If a broker-dealer is buying, are they paying him 10.25 or 10 for the stock? Also, if someone else "bids" for the stock, who does the market maker get the prices on his quote from? If someone is "willing" to pay 10.50, what happens to the quote? If someone is willing to sell at 9, what happens to the quote? What does is mean if a market maker "receives a better quote?"

Does any one of you have a summary of this book?

Would be very helpfull

Options traders, quick ? about option liquidity.

I'm in IB, but I enjoy trading options on the side. I've done fairly well and several of my better trades have been relatively illiquid options (particularly those with little liquidity more than 3 months out).

My question is, I've always had stops and limits to exit my trades and at the respective values, the brokers I use (TD Ameritrade, E-Trade, Fidelity) never seem to have an issue covering, despite low liquidity.

Should this actually be something I am worried about going forward or is the liquidity risk overblown with options?

For example, I traded ECPG options a few times.

Disclosure: I do not currently hold any ECPG options or underlying stock.

I'm wondering why option traders choose to take very far OTM strikes that they are long (both calls and puts) out of the position, when expiration arrives. I know it has to do with not wanting to see the delta but I was wondering if anyone could give a better explanation.

Thanks

Well this site helped me greatly when I was coming out of school and now I am looking at possibly changing things up a bit, so would appreciate some advice.

Background:
- 26
- Desk trader at a market making options firm [I am currently still employed]
- Manage my own product (part of a larger delta neutral book)

I've recently hired a head hunter to jump to another firm, but my question is how do I lateral to something new? I want to keep trading, but just something different (oil? energy?). I feel like I'm caught in between since I don't have 8-10 years of experience, and I'm also not fresh out of college. Anyone been down this road?

One thing that's certain about trading is that the game is constantly changing: the growth of electronic trading, the decline of physical exchanges and the decimalization of option prices all being recent examples.

The overall trend seems clear: smaller spreads and greater reliance on option pricing models. But, as of 2012, humans are still a huge part of the equation at most of the large options market makers. Almost all of the market makers rely on traders to interpret trading activity and adjust the parameters their models use to price options. While models are critical, and have certainly enabled firms to consolidate option books and employ fewer traders, few (if any) of the major players have gone completely algorithmic.

Hey everyone,

I had a question regarding foreign currency contracts.

My book is a bit confusing regarding the structure of currency contracts so I thought I'd ask the community a simple question:

So on the PHLX, the contract size is 10k units of currency except for japanese Yen which cover 1,000,000. This contract size is different from the multiplier which is still 100? Does multiplier only refer to the option premium? Is there a logical reason why the contract size is 10k?

How does one read this:
1 PHLX XDE (Euro) Nov 145 Call @ 2.10

Every contract allows you to buy 10k euros at a price of 145 cents per euro? If options contracts were exercise-able (they're not, they are US dollar cash settled), the option would be worth 14500 dollars?

Assume a customer holds 1 ABC Oct 60 Put contract. The market price of ABC is currently $60. On an ex-date with a dividend of $4, the new market price is $56. The contract is still a ABC Oct 60 put correct? The strike and multiplier do not change? So what happens to the premium? Does it just jump up around $4 (there's still time value so it's probably around $4, not exactly)? Why is this? What's the logic?

Sorry I'm studying for my series 56 and my book doesn't have a clearer explanation.

I know for stock dividends, the contract stays the same. But why does it stay the same for cash dividends?

The title is a bit dramatic but basically I have been learning about investing here and there since 4 months...

Before this time I had no idea about investing and I was one of those people who imagined making MM's on $1000 starting capital ... lol ..

Well since then I have obviously smartened up read a lot of books,programs etc mainly:
Beating the Street Peter Lynch
Letters to Berkshire Shareholders W. Buffet
Boundless SEC filings 10-K 8-Q
Some boring books on technical analysis
Bloomberg,Capital IQ

On my list I currently have:
Security Analysis, Ben Graham
Intelligent Investor, ^

Hi everyone, I was wondering if starting out on an OTC energy options principal/flow trading desk is a good opportunity for someone fresh out of college?

The desk is a "prop" desk at a brokerage (think MF Global), but we really don't have a prop book due to internal regulations and dodd frank but it *is* a flow trading desk and I get to execute and hedge risk for large institutions. The options we are working on are mostly crude oil and natural gas.

Eventually I want to move to an energy trading shop. Is my current role a good place to start out? I am not at a bulge bracket nor in energy research and am concerned with the "exit opportunities" coming from this type of desk.

Would appreciate the advice! Thanks

Conoco will be spinning off its down/mid stream business into Phillips66. Logic would dictate that since the business attributable to COP will be cut by x% the stock price should follow somewhat. This is occuring in the 2nd quater.

Why not buy a put @ ~$70 for the 3rd quarter? Am I missing something? I do not think the option will be made whole because as far as I know the shares outstanding for COP will not be changed, will it?

Hey guys, I have to answer this question for an interview and I'm really stuck, I don't even know where to start. Can anyone help me out?

Suppose you know the following information about a market:
- future is at 66
- 70 strike straddle is trading at 27
- 50-60 put spread is at 2.5
- 50-60-70 put fly is at 2
- volatility is constant across strikes

i. What is the fair value for the 80 call, 60 straddle, and 40 put?
ii. Assume we had a volatility smile along the curve. How would this make your markets different?

Hey all,
Can anyone take a minute to fully explain what the CME is...

Is it just an exchange where standardized futures and options contracts are traded and the guarantee liquidity to the market as opposed to OTC??

If the above is true, that means they must have a tremendous amont of capital correct?

Thanks.

What site do you guys use for trading equity options? Why do you like it?

On 11/15/2011 I bought BAC calls for 2.00 per share with a strike price of 7.00 for JAN 2014, while BAC was trading at approximately 6.00 per share. During that time frame I am up 7.5% of the calls, while BAC itself is up 22.6%. I was under the impression that options created leverage. To make matters worse, if I went in on margin I would be up 45.3% right now instead of 7.5%. I realize I bought at a time of excessive market volatility, but Jesus Christ, I at least expected to outperform the underlying security if the price went up significantly.

If I'm extremely bullish on BAC over the next 2 years, am I better going in on margin, or sticking with my calls?

What type of option strategy would be used for the following scenarios:
1) An investor who has a very large exposure to one stock and would like to "hedge" most of it away?
2) An investor who believes a stock will be trading within a specific price range and will not deviate?
3) An investor who is long a stock and wants to reduce the downside exposure, but maintain the upside potential?

Quick question. I'm studying for the series 56 exam, and it has conflicting information on equity options settlement. One part of the book says that it's 3 business days after exercise while another part says it's 1 day after exercise. Which is correct?