What is the best method to sell Options on low volume stocks?

J

JesseJamesFinn

I am getting no time-value for my KS $45 with a few months left, the stock hit $53.00 and the bid was $6.6 x $8.50. How do I unload options of this thinly traded stock?



I put them out $.40 above "intrinsic value" and nobody picked those options up, $.40 above intrinsic value and they sat. Why do stock options deep-in-the-money sell below value? I feel like I got screwed, I bought my Calls for $3.00 average for Feb $45 Calls when this stock was down to $42.00 a share Kapstone Paper KS. What would you do, hold the stock option and wait? I don't usually trade options because of these problems, any advice would help.
 
Quote from JesseJamesFinn:

I am getting no time-value for my KS $45 with a few months left, the stock hit $53.00 and the bid was $6.6 x $8.50. How do I unload options of this thinly traded stock?



I put them out $.40 above "intrinsic value" and nobody picked those options up, $.40 above intrinsic value and they sat. Why do stock options deep-in-the-money sell below value? I feel like I got screwed, I bought my Calls for $3.00 average for Feb $45 Calls when this stock was down to $42.00 a share Kapstone Paper KS. What would you do, hold the stock option and wait? I don't usually trade options because of these problems, any advice would help.
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What is the market in the puts? When they buy your calls, they will want to sell stock for a net a little lower then the put value so they can make money.
 
According to my tables the Feb KS $45 calls had a vol of 6 calls on Friday and were at 7.20/8.50 at the close. The stock had a high of 52.05 and closed at 51.90.

You say you are 'getting no time value' for these and 'nobody picked those up'.

I am confused. Are you long or short? if you are long, of course you don't 'get time value' you pay it. If you are short you do not sell the options to close, you buy them.

If you are short you may have to pay the ask in order to get a fill. If you are long and want to sell you may have to take the bid.

These are not options that are in demand and nobody is going to jump to fill your transaction at intermediate prices.

It also depends on where your broker puts up your transaction for a fill. Many brokers will not post your transaction in the most desirable exchange for a fill as it does not profit them to do so.

I deal in low volume options all the time. When you set up the trade you need to calculate your expected return using the expiration date and wait for that expiration. Also you need to use a broker who optimizes fills.

When you wait for expiration you don't pay the second commission.

For me I am usually waiting for expiration. If I want to dump the position early it is not unusual to wait a day or even several days to get a fill... especially if I am looking for a price between bid/ask.
 
I agree with oldnemesis. I would treat low volume options as European style when mapping out my strategy (aka waiting for expiration).
 
The morning of the earnings call Kapstone had some fake prints at $47.00, stock flew up to $53.08 and I put those (Nov $45 Calls) options out at $8.00 with no takers. I have 15 Febuary $45 Calls, the spread after the earning report was hit was the following Market. I offered 10 contracts out at $8.00 when the stock was trading wildly from $51.5 to $52.00 and she flew to $53.08 only to fall quick. My contracts were not hit, they were both in the money by $8.08. No time-value was given on any of those contracts, not even the Feb 2014s.



The 8 contracts I picked up for $1.90 when the stock was trading downward in late October from $48 falling to $42 were sold off less than intrinsic value. The Nov $45's were taken out when KS hit $49.5. I got $4.30 for 2 contracts and $6.80 for a couple more contracts once the stock hit $52.00.



If a stock is trading wild and hit's $53.00, does the intrinsic value fall in to a state of deterioration because of the probability of the price dropping after a giant run up?



Thank's for the information you posted above, I appreciate you taking the time to help with a question on a subject I am not good at. Options are best left for the professionals on Elite Trader, not a sub $5.00 stock trader.


Bid x Ask


$6.80 $8.9
 
Quote from JesseJamesFinn:

I am getting no time-value for my KS $45 with a few months left, the stock hit $53.00 and the bid was $6.6 x $8.50. How do I unload options of this thinly traded stock?



I put them out $.40 above "intrinsic value" and nobody picked those options up, $.40 above intrinsic value and they sat. Why do stock options deep-in-the-money sell below value? I feel like I got screwed, I bought my Calls for $3.00 average for Feb $45 Calls when this stock was down to $42.00 a share Kapstone Paper KS. What would you do, hold the stock option and wait? I don't usually trade options because of these problems, any advice would help.
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I don't understand your concern. You bought the 45.00 calls at $3.00, stock goes to $53.00. The bid/ask is now $6.60/$8.50 and you try and sell them for $8.40 and are not happy that they don't sell. Why don't you take the $6.60?

And you don't usually trade options because of these "problems", over 100% return and you call that a problem?
 
its not about how much he 'made', its about not getting screwed.

fwiw, thin options markets are basically rigged against you. you will never/rarely get a decent entry or exit, and almost never BOTH on the same option.

you're paying top dollar and a fat spread to get in and out, so either don't use options on these or accept that fact.

the only time it really pays on thin options markets is on something you think will rock and the iv is much lower than your projected move. then you can eat the bad pricing and still score out.
 
Quote from stock777:
its not about how much he 'made', its about not getting screwed.
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Quote from stock777:
The only time it really pays on thin options markets is on something you think will rock and the iv is much lower than your projected move. then you can eat the bad pricing and still score out.
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You have conflicting sentences in your post. Are you saying he got screwed or did he eat the bad pricing and still score out on this trade?

If my $8.40 sell limit order didn't get filled when the bid/ask is $6.60/$8.50 I would have quickly modified the order and accept the $6.60 for a 100%+ gain and consider it a good trade, or as stock777 puts it "eat the bad pricing and still score out". The market might take that 100%+ gain back if you get too greedy.
 
My opinion in low volume stocks is stay away.

As an option trader, I think you are making probabilities work less for you when you trade low volume issues.

And, you are getting a lousy bid/ask. Ofc, that goes for any financial product.
 
Quote from JesseJamesFinn:

I am getting no time-value for my KS $45 with a few months left, the stock hit $53.00 and the bid was $6.6 x $8.50. How do I unload options of this thinly traded stock?



I put them out $.40 above "intrinsic value" and nobody picked those options up, $.40 above intrinsic value and they sat. Why do stock options deep-in-the-money sell below value? I feel like I got screwed, I bought my Calls for $3.00 average for Feb $45 Calls when this stock was down to $42.00 a share Kapstone Paper KS. What would you do, hold the stock option and wait? I don't usually trade options because of these problems, any advice would help.
More...

I guess no one has answered your question yet. When I trade options with wide spreads and want to get a 'fair" execution with a sell order as quickly as possible, I start with a limit offer near the NBBO offer. Then I walk my limit down until I get an execution. Maybe drop your offer a little every few seconds. The option market makers that monitor the prices electronically will take your offer when they see enough value for them to buy your options. It only takes them a fraction of a second to determine that.

1245
 
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