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

Thank you for the ideas you posted on my Keystone Paper.
It’s confusing because a stock-option like GOOG, Apple, CRM and TSLA might be worth $1 to $3.00 per contract on Thursday November 14 with one day left until Option Expiration. TSLA November $140 Calls hypothetically might be worth $2.6 when TSLA is trading at $138 on Thursday morning. GOOG’s $1040 contracts might be trading at $3.20 when GOOGLE is trading on Thursday at $1036 ($4 under intrinsic value). I was confused because my options on KS had 15 business days left on the November $45 Calls and the stock were trading at $53.08. If a stock option is in the money by $8.08 with 15 business days left, why would the Market Center not pick up those contracts at $8.10? That’s less than $.02 for 15 business days of time-value. After this weird situation I decided to trade more liquid options like ICE, KORS, SBUX, FB, and even Wendy’s contracts, anything instead of KS and LABL with their insane spreads. I will not get in these situations, your advice will sink in my skull, thank's Stock777, you understood I was not mad about the gain, it was the fact the stock was trading so far above intrinsic-value, I did not understand why I could not get out without getting scalped! Thank you!


The Febuary $45 contracts had until Feb 2014 and they were in the money by $8.07 and almost no time-value was added to the value of those contracts. I was wondering if the stock-options become more of a liability as they go higher in the money, a quick $8 run is bound to do a pull back which KS has done on a minor DJIA down day. The stock falls from $52 to $49 on low volume, is that the reason why the Market Makers are not willing to pay any premium for the time-value of these stocks? The Bid and Ask had an insane spread, I don’t get it, if a stock Trader sold his common shares in the Market I created below, you all would agree he got screwed with the price the Market Makers paid him for hitting the bid. The stock-option was in the money by $8.07 during the frenzy of the day, if a stock trader sold his shares of KS for a $1.30 below the offer of $52.90 we would think he got taken. The small number of contracts I was trading could not impact the Market. The same with a stock trader, he is not going to do anything to depress the stocks market with a few 800 share sell orders when the Bid has 3500 shares and the offer has 1300 shares. I don’t understand why highly active stocks like TSLA can have $2 or more in value with one day left till Expiration and my November $45 Calls trading at $53.00 a share not only have no time-value, they are trading $1.20 below intrinsic-value and no premium for volatility was offered either.


KS Bid $52.9 x $53.00 Stock Options Bid and Ask $6.80 x $9.6
Time and sale: 800 shares @ $52.90 EDGX
1500 shares@ $52.95 ARCA
4900 shares @ $53.00 NYSE
900 shares @ $53.00 FADF
 
I am new to options and I appreciate your sharing this problem that is a perfect example of why you should not trade options with thin volume.

I have a question? Could you exercise @53 and get your eight bucks?
 
Thank's I learned my lesson, I bought the Calls on Kapstone because I thought the big sell off from $50 to $42 was bogus, it proved to be the case and my bids on KS were filled because those Traders who bought the stock-options probably got stock like I did. No complaints, it was a good trade so I hope somebody learns from my experience on the thinly traded stocks and stock options and realize there are better choices with liquidity, not a $2 or $3.00 spread on the Bid and Ask. Good Luck, thank's again for your help, you answered my question perfectly!
 
A warning. The terms intrinsic value and time value are simplified concepts created by brokers and exchanges for us retail folks.

Know your Greeks and how they change with they change along with the price and volatility of the underlying stock. Better yet, post index cards of Greek definitions along with graphs on your PC. You will thank me later.

I will leave more intermediate discussions to more knowledgable folks on the forum.
 
Thank you Xandman,



Can you give me a name of a Option book you feel provides the deepest insights in the valuation of a stock-option without needing a phd in math to understand the pricing models.


Who is the best Broker for Options? Is there any type of program that provides an approximate valuation using a proprietary option valuation model? The price of stock-options is still strange to me, I am going to learn as much about them as possible, the majority of money I lost on stock-options was trading stocks with 5 days or less before they expire.
 
There are a lot of highly recommended books on Amazon with high ratings. It's hard to recommend a book without knowing your knowledge of the markets. However, many options careers was started with Options, Volatility, and Pricing by Natenberg. You really gotta read it until the pages fall off.

I like Optionshouse. Low minimums to open an account. Low commission fees. They also have a suite of tools to help you understand and manage risk. My impression is that Think or Swim has the best tools. The really sharp guys build their own tools.




:)
 
Xandman,


I order the book you recommended, I stayed up most of the night in to the morning reading Bernie Shaffer's web resources and Option Monster.



I bought some CRM Febuary $55 with the gains on ICE January $200.00 CALLs. Xand-man, do you do all the advanced option trading methods? Thanks, I am going to chase HLF now, either up or down, not decided yet!
 
Good luck, man. I hope you don't regard me as an expert. I was just offering help to somebody who knew less.

There some expert level traders on this board. But, what they say won't sound like english until you master that book.

Don't do major size, yet. Also just because you have many small positions, it doesn't mean you don't have buku risk on the portfolio as a whole. This is the most important thing !!

Yeah, I've tried most of them. I can't say I've applied them to their max potential. I've also had a lot of "WTH" moments when the strategies didn't show a risk as expected simply by playing the P/L graph. Remember, that the option that you have today may have a totally different risk profile tomorrow. It's never the same option, even if the bid/ask and strike stay constant.
 
Hey friends,


I have some other options I bought before we talked on this thread, I have been holding the Feb $2.00 ARIA Calls I bought at $.70. Today when Aria was at $4.00, I offered them out at $2.10 and $2.20 when ARIA moved to $4.07and nobody picked them up. Three months of time-value and those cheaters refused to pay me a $.10, the spread is tighter than KS and LABL, my focus has been on tighter-spread options and I thank you for helping me change away from the freaky "high spread-low volume" options. I guess I will hold the ARIA contracts until they give me the $2.10 I was asking for.



Thank's again for helping me get a better grasp of no-so-liquid options are gambling at it's best. In views of changing my style, I focus on stocks like CRM and WDC, KORS,, MU and SBUX and newly bought BAC long-term Calls. The spread on these stock-0ptions is so much tighter, thank's again for reprogramming my brain!
 
Quote from 1245:

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
More...

A data point/anecdote related to the above: I received a marketing email today from OptionsXpress touting their enhanced "walk limit" feature. Of note is the 2 to 60 second time increment before the system will cancel and replace.

----Snip from the email--------
Walk Limit now supports all equities options strategies and gives traders greater flexibility with these customizable features:

1. Price customization
Enter the start price, end price, and price increment within the current NBBO* range.
2. Time increment customization
Control how long your order is worked—anywhere from 2 to 60 seconds between each cancel/replace.
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