Options Theoretical Question

Quote from matador04:

You have to sell the options...they're not european options where you settle in cash.
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European options dont have to settle into cash.

A 100 lot in options is not that big a deal and if you offered them a dime or 15 cents below parity they'd be scooped up. Thats only if its a very illiquid book. In any book thats listed on 3 or 4 exchanges then a 100 lot is tiny and the market will buy 1000's at a dime under parity all day long.

If you were actually in this situation you wouldn't want to bother with anything but selling them.
 
Quote from squarepush3r:

ok peoples, I have a questions that I wasn't able to get answered elsewhere, so ill give it a shot here.



Say I have 10,000 CALLS for NOV 100, and the stock price is 150 at expiry (third Friday).

I stand to make 10,000 x 50 = 500,000 (minus say the small CALL fees say i paid .50 cents each and commissions).


So, if I can't find a buyer on expiry for a good price, these options will automatically be exercised at expiry in November since they are in the money by .05 cents.


Now, heres my question. Say my account only has 50k cash position, I stand to profit ~500,000 for the 10,000 shares at 50 bucks below price, but how will the options exchange handle this exactly? I mean, to actually purchase 10,000 shares at 150, that will cost me 1,500,000, then I can sell them immediately, but how will my account and broker handle this?


Ok, thanks if anyone knows how this situation works! So, in summary you let options expire that are in the money and are automatically exercised, but your account doesn't have funds to pay for actual shares totaling.
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This is called EXERCISING.

You dont have to have the money to purchase. The broker does it for you, purchasing shares at the strike price/selling at market price simultaneously. And give back to you the amount-in-the-money.

My broker, optionsxpress, only charges $14 or $15 flat; regardless of the # of options.
 
Sort of looks like insider trading.

  • Newbie question on options with some serious math errors. No mention of stock in mind.
  • Buying $5000 worth of $100 calls at $0.50. Those calls would be a few strikes OTM, perhaps on a $80.00 stock.
  • Holding on during the ride to $150, few people would hold on for the entire ride up. Must be anticipating a fast ride up.
  • Could this be a buyout or biotech FDA approval coming up?
 
Quote from forex-forex:

Sort of looks like insider trading.

  • Newbie question on options with some serious math errors. No mention of stock in mind.
  • Buying $5000 worth of $100 calls at $0.50. Those calls would be a few strikes OTM, perhaps on a $80.00 stock.
  • Holding on during the ride to $150, few people would hold on for the entire ride up. Must be anticipating a fast ride up.
  • Could this be a buyout or biotech FDA approval coming up?
More...

Good call. OP got any clues to tell us?
 
Quote from forex-forex:

Sort of looks like insider trading.

  • Newbie question on options with some serious math errors. No mention of stock in mind.
  • Buying $5000 worth of $100 calls at $0.50. Those calls would be a few strikes OTM, perhaps on a $80.00 stock.
  • Holding on during the ride to $150, few people would hold on for the entire ride up. Must be anticipating a fast ride up.
  • Could this be a buyout or biotech FDA approval coming up?
More...


its obviosly just an example and this didnt happen
 
Quote from forex-forex:

Sort of looks like insider trading.

  • Newbie question on options with some serious math errors. No mention of stock in mind.
  • Buying $5000 worth of $100 calls at $0.50. Those calls would be a few strikes OTM, perhaps on a $80.00 stock.
  • Holding on during the ride to $150, few people would hold on for the entire ride up. Must be anticipating a fast ride up.
  • Could this be a buyout or biotech FDA approval coming up?
More...


ok ill be very honest :)

as you all know, LDK was $76 in early october, then their CPA came out with accounting fraud and inventory allegations. Their stock trades at mid $30's today, SOLELY on the accusation.

The word from insiders, is that this guy was a disgruntled employee, and he had only worked there 6-7 months and didn't know the full picture (CFO says all is OK).

read this for full picture
http://seekingalpha.com/article/513...-despite-potentially-debilitating-allegations



anyways, SINCE the accusations, LDK has scored over 600 Million in contracts, AND raised guidance for earnings 25% coming up. This alone would shoot the stock to $90 or so, if there wasn't the accounting fraud issue. LDK *audit report* will be released within a few days, confirming or denying these charges. The price is already priced into the stock that the charges are correct. I am confident (and taking a gamble) that it will be 100% clear, and if so the stock *may* return to its previous level of $76, + new contracts and guidance since that time of perhaps a place of $90.


Heres where my options come in :) I am loading up on Nov 60-80's and DEC 70-90's

If I am correct, I stand to make a killing on this. If anyone wants to gamble a bit, the downsides is not that much, you could cash out and break even or take a small loss worst case.


As far as replies, I like what i have seen here.

If it does work out, I could sell at a slight discount on expiry day ... I'd like to hold on as long as possible because LDK will appreciate everyday.

As far as exercising (I have never exercised before), I though this gave you the right to buy the stock? So you need to buy actual shares ... let me reread this thread and I probably will contact my broker too, to get a 'written' answer. But, ya! anyone care to take a risk with me, feel free :)
 
Forget exercising them... There is no good reason other then a dividend or a special M & A event to early exercise those options.

All you need to do is buy them and then sell them when you want. You dont have to worry at all about anything but praying the stock goes higher.

LDK is listed on 5 exchanges and there is more liquidity in it then you could ever need.

LDK .. the story is pretty well known and the options trade at a very high volatility so you're paying top dollar.
 
cool, as an off topic question, I am relatively new to options, is it profitable for any big fish to just cruise around on expiry day, and pick up options at slight discounts, to exercise them and make quick 5-10% profits? option fishing at it may be ..


I was looking and came up with another way to screw any options players on margin as well ... options and margins dont mix as I have learned the hard way recently :)
 
Quote from squarepush3r:

cool, as an off topic question, I am relatively new to options, is it profitable for any big fish to just cruise around on expiry day, and pick up options at slight discounts, to exercise them and make quick 5-10% profits? option fishing at it may be ..


I was looking and came up with another way to screw any options players on margin as well ... options and margins dont mix as I have learned the hard way recently :)
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Well you cannot buy options on margin.

And why would you be able to buy options at a discount. What you are saying is that the market makers are clueless and you can walk in and buy these mispriced options and simply exercise them for 5- 10% in profits. I cannot imagine a MM would give away 5 - 10% every third Friday of the month or that if this severe mispricing did exist, that we all would not simply do the same thing and arb away the mispricing if it did exist.

Many beginner fail to realize that intelligent people with sophisticated technology are making markets and a retail trader is not going to be able to walk in and simply grab risk-free profits.
 
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