So I decided it was about time I take a dip in the options pool and made my first buy yesterday. Admittedly I am not too knowledgeable about options valuation (yeah, passed level 2, but this is they type of stuff you need to live to truly understand- which is why I’m doing this now). So here is a question: yesterday I bought a BofA Call. Today the stock dove almost 20 %, but my call jumped almost 80%… leaving me wondering. So I’m going thought the greeks in my head, underlying down should have made my position a loser- time value lower than yesterday too- not to much change in the RFR in 1 day- so is the counterintuitive jump due to the volatility created by the recent announcements?!? Am I missing something? I learn best though experience and this one little call position has done it’s job 
yeah you pretty much got it. just buying pressure on the calls. options are just like stocks in that they can trade counter their ‘underlying value’ based on market sentiment. who knows, could’ve been a volume issue. i’d have to know more to tell you more and i don’t feel like looking at it cuz its the end of day.
something is wrong…this cannot happen unless we are talking about extremely cheap options where the spread due to weak supply and demand is sloppy, which I doubt is the case with BofA… or you may have bought a put
^^^ agreed The vol probably added some value to these options, but 80% seems a bit high.
If your option is OTM, I could imagine the increased volatility overpowering the effect of the change in the underlying. 20% sounds like a big swing in volatility, and if delta is small, then 20%*delta might be < vega*(change in vol). I’ve never dealt in options either, but that’s my take.
no- its a call. BYO BO- prices confirmed on bloomberg
TJR Wrote: ------------------------------------------------------- > ^^^ agreed > > The vol probably added some value to these > options, but 80% seems a bit high. nope he is right… calls did spike due to Implied vol… I took the liberty of selling some covered calls & shorted OTM calls… Feb 14’s some Jan 11’s calls and sold May $5 Puts.
Akanska: You didn’t tell us what strike price and expiration you have. Put or call, it can be ITM or OTM or ATM when you buy it.
check the feb 14’s calls they were higher today.
feb 15’s
BAC closed yesterday at $10.20, and the Feb $8 calls closed yesterday at $1.67!!! That call had an intrinsic value (not counting time value) as of yestedray’s close of $2.20, so how could it close at $1.67. I think there’s something seriously wrong.
Dreary Wrote: ------------------------------------------------------- > BAC closed yesterday at $10.20, and the Feb $8 > calls closed yesterday at $1.67!!! > That call had an intrinsic value (not counting > time value) as of yestedray’s close of $2.20, so > how could it close at $1.67. I think there’s > something seriously wrong. due to the merger with CFC and MER, there are some nonstandard (NS) options outstanding on BAC… you must have looking at those…
“That call had an intrinsic value (not counting time value) as of yestedray’s close of $2.20, so how could it close at $1.67. I think there’s something seriously wrong.” in the money european calls can be worth less than their intrinsic value (i.e. negative time value) if the stock pays a hefty dividend, which is the case here.
damn BofA moved earnings from tuesday to tomorrow… probably come out with respectable numbers and stock rallies… hope goes no higher then $11 tomorrow…
> in the money european calls can be worth less than their intrinsic value (i.e. negative time > value) if the stock pays a hefty dividend, which is the case here. Does it have to be European style? Arn’t BofA options American style? also, I think the OCC adjusts strike prices in cases of big dividends, but I’m not sure this time around what the issue with BofA was. If it’s related to mergers, then which ones? It would be interesting to figure out what exactly happened this time.
Dreary Wrote: ------------------------------------------------------- > > > If it’s related to mergers, then which ones? It > would be interesting to figure out what exactly > happened this time. JLW+BL Feb $8 options. CFC options deliverable of 85 shares BAC common shares 2) Cash in lieu of .95 fractional BAC shares.
That’s good. So, the original poster (akanska) did not really realize an 80% return, did he? I wish he did by the way…
Fot those wondering how my lesson is going- I have learned that the 80% (unrealized) gain was a fluke. It is now down 50%- I guess volatility really shouldn’t override the underlying value that much?
more importantly, akanska is not a dude, she’s a chick…and I believe according to her she is a pretty hot one (still unconfirmed).
If you are interested in options, you guys should visit the thinkorswim chatrooms. You will learn a heck of a lot.