JDN/AT:
When a stock is trading around $5, a penny spread approximates to 0.2%. This is excessive. The spread in many top-25-traded stocks is perhaps only about 0.04%.
The options for this price level of the underlier are generally crafted at strikes in whole dollars - $3, $4, $5, $6, etc. At this price level, the strike step would represent around 20% price change. At the same time, the option spread - minimum $0.05 continue to represent nearly one full percent of the underlier. Each by itself is ridiculously high, and the combination is just ridiculous.
The only ones who benefit from this arrangement are the market makers, and they benefit particularly well at the expense of ordinary investors who do not have opportunity to trade between the spreads, or make non-nickel limits on options. It further deprives the ordinary investor of a very useful risk mitigation tool, namely options.
Now, if Wall St is where your bread and butter comes from, that's of course a very different story...
Sun Micro's board needs to take a progessive step and implement a reverse split. There should not be any stigma attached to doing your investors a useful service.
(ps: I also think OCC should take steps to provide penny pricing and sub-dollar strikes but that's a major undertaking. I am confident one day this too will come to pass.)
Regards
-d |
