Embarrassing Newbie question from Oldie

J

jjgallow

Where.....do options come from? Option storks?

I've been in the game for a long time and never really understood this to the level of detail I need to now.

There is a stock that I want to buy calls on. A LOT of calls. Because I have reason to believe that it will sky-rocket by end of week.

The stock is extremely low volume with a market cap under half a billion.

The stock has options, but they are essentially illiquid (volume near zero).

How does one acquire options, when the exchange has no bids/asks?

Is there a MM that I can potentially acquire the options from?
 
If I offer to sell a put or a call I am, by the act of making the offer 'creating' the put or call.

You cannot buy calls unless someone else is willing to sell them.

Obviously if you want to buy calls and he wants to sell the same calls you have differing opinions of the future.

That's what makes a market.
 
If this is a US listing and the stock is as thin as you describe there is still a requirement for the market maker(s) to provide a market. It can be small and it can be wide, but market maker(s) have a minimum quoting requirement on every US exchange. This is probably a singly listed name so check the listing exchange's website and you'll see the quoting requirement. Some exchanges do allow market maker(s) not to post a quote 100% of the time, but no exchange allows a no quote situation for the entire trading day. If no market maker wanted to quote the issue they would ask the exchange to de-list the issue and the exchange would stop listing new expirations. A listing can have no bids OTM and near expiration, but no offers for an entire trading session is not possible. Check the listing exchange's requirements.
 
There are some limits on how many options you can own:

Position and Exercise Limits:
Limits vary according to the number of outstanding shares and past six-month trading volume of the underlying stock. The largest in capitalization and most frequently traded stocks have an option position limit of 250,000 contracts (with adjustments for splits, re-capitalizations, etc.) on the same side of the market; smaller capitalization stocks have position limits of 200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-capitalizations, etc.) on the same side of the market. The number of contracts on the same side of the market that may be exercised within any five consecutive business days is equal to the position limit. Equity option positions must be aggregated with equity LEAPS positions on the same underlying for position and exercise limit purposes. Exemptions may be available for certain qualified hedging strategies.
http://www.cboe.com/Products/EquityOptionSpecs.aspx
 
ajacobson said:
If this is a US listing and the stock is as thin as you describe there is still a requirement for the market maker(s) to provide a market. It can be small and it can be wide, but market maker(s) have a minimum quoting requirement on every US exchange. This is probably a singly listed name so check the listing exchange's website and you'll see the quoting requirement. Some exchanges do allow market maker(s) not to post a quote 100% of the time, but no exchange allows a no quote situation for the entire trading day. If no market maker wanted to quote the issue they would ask the exchange to de-list the issue and the exchange would stop listing new expirations. A listing can have no bids OTM and near expiration, but no offers for an entire trading session is not possible. Check the listing exchange's requirements.
More...

When you sign up to make markets in a symbol, you do have a quoting requirement, but there is no requirement to make good markets. I left the Amex in early 2010. Back then I was required to be at least 10 up and $5.00 wide.
 
Options are basicly contracts between 2 parties, that served originally as insurance. So they are born out of an agreement, when 2 parties agree on the contract's details and price.
 
When is a serial month listed? Some of my favorites don't have an August month. I take it there is a quarterly and monthly procedure.
 
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