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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: Madpinto who wrote (1477)7/2/1999 8:51:00 AM
From: RealTime  Read Replies (1) of 2241
 
Thanks Madpinto, Here is the deal. News is pending on the stock (ARQL). When I bought my option contracts, the price went down 30% meanwhile the stock went from 4.25 since I bought the contracts, to almost
4 15/16 at close yesterday. I must have paid an inflated price for the contracts, below I will explain.

But first, is there anyway of knowing what the fair value of the option contract bid-ask should be relative to the share price?


Here is a play which I think might explain what happened to me. Someone bought the same contracts earlier the same day that I bought in. Now I come along, without knowing what the bid and ask was at open that day for the contracts I was about to buy. Maybe the price for this contract opened with the ask at 13/16. This early bird buyer comes along before me, and pushes the price of the ask up to 1 1/4. I buy in later that day at 1 3/16 thinking this is what the fair price is with re: to the underlying share price. Then, there is no more buying since I bought in. So the price of the ask settles down to a level which is more in line with the underlying share price. A lousy 13/16 on the ask.

What do you think?

Thanks in advance , dan
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