Deep ITM Calls

[Crash the Gate]

I would like to buy deep ITM calls for AAPL about a month out (JUN 28 or JUL 5). Unfortunately, the lowest strike price available on IB is 130 and 125 respectively. If I go out to JUL 19, the lowest strike price drops to 80. I checked on Nasdaq's option site as well to confirm it wasn't an IB "issue" and the chains start at the same strikes.

1) Is this accurate information? Or am I a) not looking in the right area of IB/right website/etc. or b) these strikes are available to buy/sell, but not for retail investors?

2) If my information is accurate, then is there some logical reason for this? I can buy TSLA calls at much lower strikes and they trade in the same price neighborhood.

 

[Robert Morse]

I do get the benefit of paying out of pocket 100% of a DITM call that low when you can buy a 130 with little put premium. They go that low.

 

[stepandfetchit]

If you desire more strikes, reference the Monthlies instead of the Weeklies! -- That is fairly consistent across all equities and indexes.

 

[tommcginnis]

. or b) these strikes are available to buy/sell, but not for retail investors?

IB is a DMA -- look that up.
Your order is treated just like Ray Dalio's or CalPers or Tim Cook's.
(Same market, too.)

 

[FSU]

Why do you want to buy calls that deep in the money? If you buy the 130's, they are essentially the same as buying the deeper in the moneys. The corresponding put is trading at only .05 with the 130's, so you will pay very little "extra" premium vs the deeper in the moneys and you will have less risk and less cost of carry.

 

[Crash the Gate]

IB is a DMA -- look that up.
Your order is treated just like Ray Dalio's or CalPers or Tim Cook's.
(Same market, too.)

Tom,

Thank you for clarifying that for me. That helps.

 

[Crash the Gate]

I'm not sure I explained this as well as I had intended. I was probably too specific. What I am trying to figure out is why certain strikes seem to be available in certain underlyings and not in others and even across the same underlying with different expiration dates. Is there not a market for them? Could I write $20 AAPL calls (or puts) for an expiration date a month out if none currently exist? We can certainly question the wisdom of doing either of those, but I'm not questioning what I SHOULD do, but what I CAN do?

 

[tommcginnis]

What I am trying to figure out is why certain strikes seem to be available in certain underlyings and not in others and even across the same underlying with different expiration dates. Is there not a market for them?

"Bingo!"

As Step&Fetchit noted, if you look at weeklys versus monthlies, you'll see quite a difference. For that matter, if you look at a monthly (or quarterly!) a year out, you'll see only major strikes are offered. As time goes on, maybe the underlying climbs or falls, and the market desires that more strikes get written in finer grain. $5 increments become $2.50 increments become $1.00 increments. Requests get made, and the CBOE goes to work. (And fleshes out the option chain with more-complete coverage, and finer-degreed strikes. So, next time you're looking at option chain software, think a kind thought for the guy who probably invented his own method of filling in those damn holes.)

As a hint, always place your long (spread) positions on a major strike, as if you have to leg out, a Buy can be put on your short position and left to cook til it gets hit. But the one you own? If it's not on a strike that gets some traffic, you'll never sell it. Look at far OTM/ITM strikes about to expire, and look at which strikes have volume and which don't. "Ewwwwww!"

 

[FSU]

I'm not sure I explained this as well as I had intended. I was probably too specific. What I am trying to figure out is why certain strikes seem to be available in certain underlyings and not in others and even across the same underlying with different expiration dates. Is there not a market for them? Could I write $20 AAPL calls (or puts) for an expiration date a month out if none currently exist? We can certainly question the wisdom of doing either of those, but I'm not questioning what I SHOULD do, but what I CAN do?

I think the exchanges want to limit the bandwidth that is used. Every strike that is listed must have a market made on it, and be disseminated. MM's would prefer not making markets in 1,000's of options that there is virtually no chance of trading.

For the weekly options that you mentioned, there is no economical reason for strikes to be listed below or above a certain level. For example in AAPL the June weekly options below a certain strike, all the puts will be offered at a penny. Which makes it very unlikely these strikes will trade and wastes the resources of the MM's and the exchanges. For the monthly longer dated options, there is more of a reason to list more strikes, as they will have some time premium.

 

[Crash the Gate]

"Bingo!"

As Step&Fetchit noted, if you look at weeklys versus monthlies, you'll see quite a difference. For that matter, if you look at a monthly (or quarterly!) a year out, you'll see only major strikes are offered. As time goes on, maybe the underlying climbs or falls, and the market desires that more strikes get written in finer grain. $5 increments become $2.50 increments become $1.00 increments. Requests get made, and the CBOE goes to work. (And fleshes out the option chain with more-complete coverage, and finer-degreed strikes. So, next time you're looking at option chain software, think a kind thought for the guy who probably invented his own method of filling in those damn holes.)"

Tom,

You've been extremely helpful. Can you go into what you mean by "requests get made?"