How do you estimate future option price?

[1a2b3cppp]

Quote from spindr0:

I didn't say that it would be worth $2.83. I said that it would be $2.83 ITM (in-the-money). Do you know what ITM means?

Whoops. ITM is in the money. Does $2.83 ITM mean it's worth $2.83 more than at the time of purchase (since it was OTM at the time of purchase in this case)?

Given that you took the current price of the Apr $50 call as the future price for the Apr 50p at UL price of 50, I'd say that you were way off in more ways than one.

I got confused by what Don87109 said.

 

[spindr0]

Quote from 1a2b3cppp:

Whoops. ITM is in the money. Does $2.83 ITM mean it's worth $2.83 more than at the time of purchase (since it was OTM at the time of purchase in this case)?

I'm confused. What does being $2.83 ITM mean? Can you help me out while I wait for those penurious option MM's to toss me a few cents more (yawn)?

 

[Don87109]

Quote from 1a2b3cppp:

Let me see if I have this right.

So I'm looking at April 11 QQQQ options.

QQQQ is currently at $57.17. Let's say I own 100 shares.

Let's say I'm worried that QQQQ is going to drop significantly sometime before April 11, so I buy a put option with a strike price of $53.

So the April 11 $53 put is currently $0.57 which means I would pay $57 for it, right?

Ok, so now let's say it's sometime before April 11 and QQQQ drops to 50 because something crazy happened in the economy or whatever. Alright. So now my 100 shares of QQQQ stock have lost $717. That sucks. BUT I have that long put that is now ITM.

As of right now, I'm trying to estimate how much it would be worth should QQQQ drop to $50.

Looking at current April 11 $50 puts, the price is $0.27. Well that can't be right.

Did you mean look at the other type of options prices for the stirke price? So the current price for a April 11 $50 call is $7.30. Does that mean that my put is possibly going to be worth $730?

You need to look at the April 56 put to approximate what the April 53 put would be worth if the QQQQ's dropped $3.

I think the April 56 put closed at about 1.36 around closing time.

One other point, always use the bid/ask price not the last transaction price (that could be very old).

As the others have said a modeling program is best for determining future prices, but this technique is good for a quick estimate. Although maybe it's better used by experienced option traders since it's easy to get confused.

Don