To: experienced option traders:
from: a neophyte, re. buying strategy. If I wanted to buy, say, 100 contracts of ZNLAT, how is the best way to buy? The open interest on these new options is only 101 today. The bid-ask is 12 3/8-13 1/8, for a spread of 3/4.
1. should I put in a market order for 100 contracts, and assume I'll get them for about 13 1/8 (if the underlying stock doesn't move too much)?
2. should I buy 10 contracts a day for 10 days, at the market price?
3. should I put a limit buy order at 12 3/4 (midpoint of bid-ask) for 100 contracts? What are the chances of getting it filled?
4. I've noticed that, on some days, no contracts are traded, yet the bid-ask still changes. How can that be? It's a market, right? So, shouldn't the bid-ask stay the same until someone new makes a trade and changes it? Or, is there a market maker who decides at what price he'll buy and sell them, even when no contracts are trading?
5. The size of the spreads seem to change a lot, from a quarter point all the way to a full point. Why the variability, and why the size (much bigger than on the underlying)?
6. Let's assume that by July 2000, INTC is at 200 :). Can I assume that I'll be able to sell my very-deep-in-the-money options, strike price 100, for 100$, plus a time premium of about 4$? Who would want to buy such a option? Is the market maker obligated to accept a sell order at the bid price?
7. If I hold the LEAPs for over 18 months and sell them, I pay 20% cap-gains taxes. If I hold the LEAPs 18 months, and then pay the strike price and convert them to stock, then sell the stock 2 months later, do I still get the 20% rate? Or do I then pay short-term capital gains (on selling price minus option cost minus strike price)? :(
Sorry for the long post, but I've never done this before, and I'd like to understand things completely before I jump in. |
