Does the price of underlying stock matter?

[nazzdack]

Quote from stock777:
----peculiarities to high priced stocks and options....
----pros here are aware of....

The bid-ask spreads on the "really high" strike prices can become prohibitive, unless you have exchange memberships, co-location,
"deep pockets", and "rocket scientists" on the payroll. :eek:

 

[newwurldmn]

I would wager that bid ask as a percentage of underlying price is lower for high dollar stocks.

 

[noregrets]

I would venture that you also should not have to pay the full bid-ask spread unless the options are very illiquid. On very liquid high-priced issues (e.g., AAPL, GOOG, SPX) you can generally get a spread filled at a few cents off mid unless it is a fast-moving market.

 

[stock777]

Quote from nazzdack:

The bid-ask spreads on the "really high" strike prices can become prohibitive, unless you have exchange memberships, co-location,
"deep pockets", and "rocket scientists" on the payroll. :eek:

no , not really. To clear the b/a on a low priced stocks option, you can wait for hours or days.

on something like aaple, you can be green in the time it takes to say jack.

 

[nazzdack]

Quote from stock777:
----To clear the b/a ....
----you can be green....

If you're "good" at identifying price direction, you ought to be trading the underlying stock instead of the options.

 

[pikachu9]

Quote from stock777:
on something like aaple, you can be green in the time it takes to say jack.

Or in the red by the time you say jill :eek:

 

[Squilly_D]

Quote from nazzdack:

If you're "good" at identifying price direction, you ought to be trading the underlying stock instead of the options.

In my opinion, even if one decides to do a directional trade, they can create an ATM debit spread which would allow one to use a fraction of the money as oppose to the actual stock price. I guess it may depend on the amount of capital one is working with...

To me, what matters for choosing an underlying to trade in terms of options is the liquidity of the stock (Volume), the open interest on the different strikes of the underlying (the more open contracts, the better chance to be able to close one's position), and the b/a spread of the near the money strikes of the underlying ($0.01 on highly traded options, etc.) which equates to possibly more money one can extract from the trade and not give back to market makers.

 

[TskTsk]

Quote from pikachu9:

Markets are efficient.

Fama is that you?

 

[stock777]

Quote from nazzdack:

If you're "good" at identifying price direction, you ought to be trading the underlying stock instead of the options.

Not necs.

You can double or triple your money (or more) rather easily under the right conditions. Downside is always protected by the mere fact that you own a cheap option. Stock requires exposing much larger capital to get the same $ return.