supermicro option price case study / analysis or discussion whatever it is appropriate

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ggelitetrader000

Today SMCI supermicro stock dropped almost half from 20-ish to 11-ish now due to security scandal. But my concern is not with the bloomberg news, i jumped on my etrade platform and decide to buy strangle but moderate OTM, but price gap is just humongous.
At 11.x $ current price, 10 put ask/bid is like 3.0$/0.5$ almost 6-fold difference. On the call side, the difference is almost tenfold. 2.85$/0.2$. I hesitated. Because once I buy at ask, the value of holding will reflect the bid price meaning the holding will immediately drop several fold after purchase. I am wondering when would be a good time (less gap) to buy option after huge drop on stock price?

How do you explain this?
- it appears volatility has affected the bid and bid/ask gap big time. But it appears to have affected the ask gap big and almost none for bid. Perhaps bid reacts to this huge stock movement slower than ask?

- i haven't mastered the option pricing calculation technique, black-scholes or other ones, it would be nice to run the formula against the option price to see any of these SMCI prices are erratic.
 
If you shovel enough excrement over the top of something, it is likely to develop an unpleasant aroma!

You begin with an event on a not-so-liquid product, then focus on B/A spread of unspecified width of a Strangle. -- It may be more enlightening to observe the components of your trade to gain insight.

First consider that what you observe is just the market!
 
stepandfetchit said:
If you shovel enough excrement over the top of something, it is likely to develop an unpleasant aroma!

You begin with an event on a not-so-liquid product, then focus on B/A spread of unspecified width of a Strangle. -- It may be more enlightening to observe the components of your trade to gain insight.

First consider that what you observe is just the market!
More...
Hey! stop advising some empty advice. If you are expert more than me do some tangible stuff not like social wisdom post crap.
 
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Many expect option prices to always religiously reflect some type of BS formula. There are some assumptions underlying that model that few appreciate. One is that the financial asset can be easily traded - volume. You want to be able to quick flip.

The real culprit here is lack of option volume.

When you have big changes in price there is a lot of uncertain in what will happen next. Bid - Ask spread will widen. The more uncertainty - the larger the spread.

This is the market maker at work. With such low volume he does not have a lot of confidence that he can flip trades quickly.

Vol is prime in successful option trading. You must have done a who took a big hit and then wanted to do options. Doesn't work well without volume.
 
ggelitetrader000 said:
Hey! stop advising some empty advice. If you are expert more than me do some tangible stuff not like social wisdom post crap.
More...

he didn't post empty advice, if you dedicated some time to learning how to read instead of wondering aloud "why are the spreads on this stock blown out the day of a huge security scandal" you'd be miles ahead of the curve here.

"You begin with an event on a not-so-liquid product, then focus on B/A spread of unspecified width of a Strangle. -- It may be more enlightening to observe the components of your trade to gain insight."

Two parts here, both equally valuable. 1) the product was illiquid to begin with presumably, so how much wider are the spreads than normal? I assume you've never traded this product before. The spreads are wide because it's riskier for MM's to take the other side of your trade after such a huge news drop. 2) Post your strikes/expirations you're wondering about and you might get more specific answers

"First consider that what you observe is just the market!"

Meaning this is what happens when small name stocks get bad open ended news that leave more questions than answers. See above.
 
vegamedic said:
he didn't post empty advice, if you dedicated some time to learning how to read instead of wondering aloud "why are the spreads on this stock blown out the day of a huge security scandal" you'd be miles ahead of the curve here.

"You begin with an event on a not-so-liquid product, then focus on B/A spread of unspecified width of a Strangle. -- It may be more enlightening to observe the components of your trade to gain insight."

Two parts here, both equally valuable. 1) the product was illiquid to begin with presumably, so how much wider are the spreads than normal? I assume you've never traded this product before. The spreads are wide because it's riskier for MM's to take the other side of your trade after such a huge news drop. 2) Post your strikes/expirations you're wondering about and you might get more specific answers

"First consider that what you observe is just the market!"

Meaning this is what happens when small name stocks get bad open ended news that leave more questions than answers. See above.
More...

makes no sense,look like a someone with the poor understanding of the market with problem delivering his/her speech.
 
Ayn Rand said:
Many expect option prices to always religiously reflect some type of BS formula. There are some assumptions underlying that model that few appreciate. One is that the financial asset can be easily traded - volume. You want to be able to quick flip.

The real culprit here is lack of option volume.

When you have big changes in price there is a lot of uncertain in what will happen next. Bid - Ask spread will widen. The more uncertainty - the larger the spread.

This is the market maker at work. With such low volume he does not have a lot of confidence that he can flip trades quickly.

Vol is prime in successful option trading. You must have done a who took a big hit and then wanted to do options. Doesn't work well without volume.
More...

Obviously market is erratic and I think that is natural instead of following some BS formula, however I think one can at least use as a reference point.
Regarding Bid/ask, I think I will have to look closer, probably more rational questions later.
 
I
ggelitetrader000 said:
Obviously market is erratic and I think that is natural instead of following some BS formula, however I think one can at least use as a reference point.
Regarding Bid/ask, I think I will have to look closer, probably more rational questions later.
More...

It's a business. You want to make money, the market maker also wants to make money. When you put yourself in the shoes of the mm, then you can appreciate the mm's perspective. Mm advantages is the spread and book data, their disadvantage is that they have to provide liquidity or quotes. Your advantage is that you get to choose what to trade and at what price you want to pay. The math/formulas are baselines. Rules that are meant to broken or bent as needed.
 
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