true that tvPM!
Dreary Wrote: ------------------------------------------------------- > That’s good. > > So, the original poster (akanska) did not really > realize an 80% return, did he? I wish he did by > the way… no she did have an unrealized gain of 80% b/c of the huge swing in implied vol… however, that swing is completely given back today and then some… BYO+BO traded as low as .19 on Wednesday and closed .42 yesterday… now they are .13
> 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? I don’t think there was an unrealized gain, i.e., even if you wanted to realize the gain you couldn’t because there was no gain.
Dreary Wrote: ------------------------------------------------------- > > 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? > > I don’t think there was an unrealized gain, i.e., > even if you wanted to realize the gain you > couldn’t because there was no gain. there was. i checked. btw i closed my options i sold yesterday this morning… if i had waited i would have done much better but oh well. a gain is a gain.
tvPM Wrote: ------------------------------------------------------- > 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). She’s also married. Hot or not (I have no knowledge either way); I think she’s pretty cool!
Option prices can look like crazy things are happening. Volume on certain options can be really low, so the tick price can really confuse you. ALWAYS look at the bid and ask since some of these options could go a whole day without trading. Its less likely on BAC right now, but it happens. Two weeks ago, I sold some BAC $16.50 calls for Feb. The unfortunate side to my story is that they were covered calls. Yes, I’m an idiot.
dlpicket Wrote: ------------------------------------------------------- > Two weeks ago, I sold some BAC $16.50 calls for > Feb. The unfortunate side to my story is that they > were covered calls. Yes, I’m an idiot. If that’s the worst you do…you’re in good shape.
Dreary Wrote: ------------------------------------------------------- > > 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? > > I don’t think there was an unrealized gain, i.e., > even if you wanted to realize the gain you > couldn’t because there was no gain. I definitely could have realized the gain. There were plenty of prints and the bid was in the .40 range yesterday. I bought @ .20 so I would have made a whopping $20- now I have lost $10… again this position is to learn, not land me in early retirement 
I didn’t look at time and sales until EOD when I noticed the closing price in my acct and assumed it was a data error. I didn’t even bother to look at the pricing mid day since BAC took such a dive and I assumed the option would follow. Lesson learned!
"Does it have to be European style? Arn’t BofA options American style? " only european, if american call has negative time value then it would be exercised early, so the value of american call can’t be less than the intrinsic value (unlike european call on a dividend-paying stock). but i’m just talking general option theory, don’t know what the specific BofA options are. if the strike is indeed adjusted then that changes the whole picture
I sell American Calls and I’ve never seen one exercised early. I realize its possible, but I don’t think too many people do it.
it’s probably not optimal anyway unless the stock pays a really big dividend
> I sell American Calls and I’ve never seen one exercised early. I realize its possible, but I > don’t think too many people do it. I have excersied early a few times in the past, but it was only to save a little on commissions! It was cheaper to do the excerise and place an immediate stock sell order for $9.99, instead of accepting ridiculous options bids.
Akanska - when you decided to buy these particular calls… what did you see as the catalyst for the stock going up 100% in just over a month?
- As stated many times- this was a 20$ tuition investment. I have never bought/sold an option before nor do I pretend to know what I am doing. I wanted something volitile to watch and see how vega effects the valuation as theta -> 0. 2. They underlying was at 10 when I bough- so only a 50% increase was necessary for it to be ITM. There have been multiple times that these financials have popped/ dropped -+50% over the course of a week- especially when gov’t intervention comes into play. Even a smaller increase might yield a profit as far as the value of the option goes. 3. It is my impression that one can make money not only by exercising options but also by selling them- no? Ppl keep saying that when the bid was 80% higher than my purchase px I wouldn’t exercise… but couldn’t I simply have covered my long position by selling? Am I missing something, or is everyone simply implying that I could have not hit that bid?
- You can paper trade this stuff with brokers like thinkorswim or optionsxpress without committing any money. Then you can have multiple positions, look at the greeks, and trade as much as you’d like. 2. Good observation, but the volatility was probably priced into the option, making the option more expensive and less profitable for a given move in stock price. 3. If you recall from trusty ol’ level 1 of the CFA Program (I haven’t reached the level 2 material yet), it almost always makes more sense to sell an option rather than to exercise it because you can make more money with the additional extrinsic value (time value). In rare cases, which JDV has mentioned before, you might want to exercise before maturity.
Also, remember that when you buy to open an option, you can sell to close options, like futures. You are “offsetting” your long contract with a short one, with a net position of no expoure.
Honestly akanska, I think you started with an extremely unusual lesson with options trading. I would say 99.99% of your future trades will not look anything like what you have seen. In addition, I still doubt very much (despite what I have heard here) that the unrealized gain you thought you could have had was really there. The OCC does all kinds of procedures to make sure such free lunches are not there.
2 words: bloomberg QRM it was there … I missed it. Lesson was not so much options pricing as watching my investments ; )