I guarantee I'm not nearly the most experienced option trader out here but I can tell you from, at times, very costly experience the answers to some of your queries. First, the best advice I ever ignored came from an option specialist in Kodak. His general observation about using options to speculate for trading profits was: the problem with options is that their value deteriorates so quickly. How true! You are paying a premium for underlying volatility and time for the most part. A fairly bright cat from University of Chicago, with his equally bright pals, came up with the Black-Sholes model for valuing options. It's now universally used today to determine the "right" price. If we all "know" the "right" price what's with these crazy bid/asks? I submit it's the usual game of screw Joe Lunchbox. When volume is limited, and that's almost a given, investors are at the mercy of what may be a misnomer, but I'll call, the market maker for AMAT options. I was told by Fidelity, incorrectly!, that if I bid for option contracts at the ask that the MM stood ready to sell at that price. They forgot to mention that the number of contracts makes a huge difference. I've bid for contracts at the ask (less than $4,000 worth) and have had the MMs simply raise the bid to what was the ask and then raise the ask another 30% higher. It's crazy!! A market order is suicide and only an option if you MUST create or liquidate a position. A market order for AMAT will always be filled (at the worst possible price for you) because there is enough volume. In smaller volume issues options are a nightmare!! If others would like to chime in feel free. I could go on, but I have to get more coffee.
Also, I'm only a quarter of the way through an excellent book on options. After I finish, I plan on writing up a highlighted summary with detailed examples in Word for a friend. At that time I will provide a link to it at my homepage for anyone interested.
RO |
