Who/Why trade options at such extreme value.

[xappppp]

I check the historical high if a UAL put option price, just wondering who would trade at such extreme prices. Is it purely speculators on both side just trying to gamble, or it is some one really trying to hedge/cover their positions.

What’s the rationale could their be? Or its just not meaningful to dig a story out of it at all? I feel it could be something quite anecdotal on both side of the trade considering what’s the price it is now.

 

[old coot]

In March, the stock traded below $18. So, your 27 put was $9+ in the money, and there was a general feeling, at that time, that airlines were in a world of trouble. so, a $2 premium for 6 months of time. not a bad deal.

 

[guru]

What do you mean? When options are too expensive then there will be more sellers selling them, while when they're too cheap then there will be more buyers buying them. In the end it all balances out, so they're never too cheap or too expensive.
If you think they're too expensive then maybe join the crowd of sellers and sell as many as you can?
Generally so many people may want to buy them cheap that they aren’t cheap.

 

[Handle123]

Or some new trader did market order to get out right now and poof, LO . Lessons usually hurt.

 

[xappppp]

In March, the stock traded below $18. So, your 27 put was $9+ in the money, and there was a general feeling, at that time, that airlines were in a world of trouble. so, a $2 premium for 6 months of time. not a bad deal.

Thanks for the details, seems it’s always a fairways on the spot, and always not the case their after. I think the environment is just changing rapidly, or one side of the trade is significantly wrong about something.

 

[donnap]

That price traded on March 20th, when UAL was 25ish.

That appears to be the first day that the option was listed.

Maybe it was a seller? And the MM hedged long stock. Everybody's happy, as usual, and all is well in optionland

 

[xappppp]

I don’t think it’s expensive or cheap, I don’t even think about thinking its expensive or cheap. Just trying to understand why its fair trade for both side.

What do you mean? When options are too expensive then there will be more sellers selling them, while when they're too cheap then there will be more buyers buying them. In the end it all balances out, so they're never too cheap or too expensive.
If you think they're too expensive then maybe join the crowd of sellers and sell as many as you can?
Generally so many people may want to buy them cheap that they aren’t cheap.

 

[guru]

I don’t think it’s expensive or cheap, I don’t even think about thinking its expensive or cheap. Just trying to understand why its fair trade for both side.

That's because that's how things work regardless of what may you think or not think. I mean that you may not think whether they're expensive or cheap, but other people do. So others, not you, will sell them when they're too expensive, or buy them when they're too cheap. The price balances out based on supply vs demand, which are driven by the concept of expensive vs cheap. And you can join the sellers or the buyers.

 

[guru]

And really, UAL may face potential bankruptcy, so the insurance cannot be too cheap. Anyone selling those puts may be taking very high risk. And you also wouldn't want to take such risk, otherwise you and everyone else could get rich by simply selling those expensive puts.