Deciphering Options

N

nwoptions

Hi guys,

I'm new to options trading and I'm curious about what these numbers mean. I'm looking at the puts for AVY.

I'm looking to sell a put for AVY.

For the 190 strike: the open interest = 7, volume= 1, bid size= 120, bid = 0.25, ask = 2.50, ask size = 147.

Is the bid size large enough? Do I look at the bid price or ask price when selling?

Thanks
 
Last edited:
The size doesn't matter. The bid/ask tells us that we shouldn't touch this. Would you buy shares of stock for $2.50 when it may be worth only $0.50? Or would you sell it for $0.50 when it may be worth $2.50?
Usually you should be able to get the mid price between bid & ask, but on liquid stocks, not stuff with no OI, no volume, and huge bid-ask spreads.
But if you want to sell a put on this one for $1.30 and wait till expiration without ever needing to buy it back, then it may work. At least you can always try. Just need to be careful because sometimes the mid price may not be a fair price, while it's difficult to tell what it's really worth.
Usually people who buy illiquid options later have difficult time selling it at reasonable price.
 
nwoptions said:
Hi guys,

I'm new to options trading and I'm curious about what these numbers mean. I'm looking at the puts for AVY.

I'm looking to sell a put for AVY.

For the 190 strike: the open interest = 7, volume= 1, bid size= 120, bid = 0.25, ask = 2.50, ask size = 147.

Is the bid size large enough? Do I look at the bid price or ask price when selling?

Thanks
More...
oh pls, you're not just new to options, you're new to trading in general. Please do yourself and your account a favour and stick to papertrading for a while until you've learned these very basics.

After that, trade ONE options contract and DO NOT sell options short...that part comes later :)
 
You are kidding right? How do you expect to compete with the smartest in the market when you can't even inconvenience yourself to read the absolute basics of trading and investing? And why are you even looking at options, start more humble with indexes or equities. You will otherwise get eaten alive and only lose money. That is not an ill wish but a promise.

nwoptions said:
Hi guys,

I'm new to options trading and I'm curious about what these numbers mean. I'm looking at the puts for AVY.

I'm looking to sell a put for AVY.

For the 190 strike: the open interest = 7, volume= 1, bid size= 120, bid = 0.25, ask = 2.50, ask size = 147.

Is the bid size large enough? Do I look at the bid price or ask price when selling?

Thanks
More...
 
nwoptions said:
Hi guys,

I'm new to options trading and I'm curious about what these numbers mean. I'm looking at the puts for AVY.

I'm looking to sell a put for AVY.

For the 190 strike: the open interest = 7, volume= 1, bid size= 120, bid = 0.25, ask = 2.50, ask size = 147.

Is the bid size large enough? Do I look at the bid price or ask price when selling?

Thanks
More...

Avery Dennison (AVY) is a *VERY* thinly traded symbol with little volume or open interest. Many strike prices have zero Vol or OI. The Bid/Ask spreads are wide because of that. If you're new to options you need to pick symbols that are much more liquid with much narrower Bid/Ask spreads. E.g. SPY options usually have a Bid/Ask only a penny (.01) apart. Ditto the QQQ.

Right now the July 21 Avery 190 Puts have a Bid of .25 (what someone is willing to pay to buy the option) and Ask of 2.15 (what someone wants to sell the option for.) Right now the 190 Put has a Vol of 0 (zero) and an OI of 7. That means that so far today no one has traded the 190 Puts and only 7 contracts are in play since the contract began trading. The Bid Size is 29 and the Ask size is 30 but consider the Volume which is 0. No bidder want to pay the ask and no one who is selling wants to accept the (low) bid.

I advise you to move on to symbols that are much more liquid. Either ETFs or individual symbols.

That said, it sounds like you need to educate yourself on options and how they work. Here's a list of my resources that's in my library. Start with a book or two and visit the web sites I have listed. You'll find a lot of valuable information that will help learn about options in general and the Bid/Ask Spread, Volume and Open Interest in particular.

As an aside, I trade futures options (/ES exclusively) which is has little higher learning curve that equity options (derivatives of derivatives.) I don't recommend that you start with futures options but have included one recent book (Garner's) in case you want to read more about the subject.

Best

B Lucci

Books

Trade Options With an Edge
Russell Richards 2017
ISBN 978-1524538187

Option Spread Trading: A Comprehensive Guide to Strategies and Tactics
Russell Rhoads 2011
ISBN 978-0470618981

The Complete Guide to Option Selling: How Selling Options Can Lead to Stellar Returns in Bull and Bear Markets, 3rd Ed.
James Cordier 2014
ISBN 978-0071837620

How to Price and Trade Options + Website: Identify, Analyze, and Execute the Best Trade Probabilities (Bloomberg Financial)
Al Sherbin 2015
ISBN 978-1118871140

The Option Trader's Hedge Fund: A Business Framework for Trading Equity and Index Options
Dennis Chen, Mark Sebastian 2012
978-0134807522

Getting Started in Options, 8th Ed.
Michael C. Thomsett 2009
ISBN 978-0471707127

Trading Weekly Options
Russell Rhoads 2014
ISBN 978-1118616123

Essential Option Strategies: Understanding the Market and Avoiding Common Pitfalls
J. J. Kinahan 2016
ISBN 978-1119263333

Option Volatility & Pricing: Advanced Trading Strategies and Techniques, 2nd Ed
Sheldon Natenberg 2014
ISBN 978-1557384867

Options, Futures, and Other Derivatives, 10th Ed.
John C Hull 2011
ISBN 978-9352866595

Options as a Strategic Investment 5th Ed.
Lawrence G. McMillan
ISBN 978-0735204652

TRADING COMMODITY OPTIONS WITH CREATIVITY: When, why, and how to develop strategies to improve the odds in any market environment and risk-reward profile
Carley Garner 2020
978-1948018906

Online Resources

TDAmerirade
thinkmoney Magazine
e.g. 51 issues include 104 bid/ask spread discussions
https://tickertape.tdameritrade.com/trading/thinkmoney

tastytrade On Demand
https://www.tastytrade.com/on-demand
e.g. The bid ask spread
https://www.tastytrade.com/shows/tasty-extras/episodes/the-bid-ask-spread-07-24-2020

Chicago Board Options Exchane Options Institute
Education Products & Services
https://www.cboe.com/education/

The Options Clearing Corporation
Investor Education
https://www.theocc.com/Company-Information/Investor-Education

The Options Industry Council
Investor Education
https://www.theocc.com/Company-Information/Investor-Education

Investopedia
Options Trading Strategy & Education
https://www.investopedia.com/options-trading-strategy-and-education-4689661

The CME Group
All About Options
https://www.cmegroup.com/education/courses/curriculum-all-about-options.html
 
Last edited:
You must log in or register to reply here.
Back
Top