Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Canadian Options -- Ignore unavailable to you. Want to Upgrade?

To: Porter Davis who wrote (1554)	10/20/2000 5:05:18 PM
From: Daniel Chisholm	Respond to of 1598

Hi Porter, Here's a scenario for your comments in general, as well as your comments on how you might have handled this trade as the specialist (if you were the Corel options specialist on the other side of my offers) I have held 10 Corel Oct 10 puts for some months now (they expired today). The open interest was 10, so I guess I was it ;-) I was somewhat peeved at the bid price being consistently ten to twenty cents less than intrinsic value for the past couple of months -- so I was considering the possibility of exercising instead of selling to close, in case the spread was "too wide". At about 3:20pm today, for example, the stock was 6.05-6.10, and the options were bid 3.80-4.05. If I were to buy 1000 shares at 6.10 and exercise the options, I'd receive $10,000 less two $100 commissions --> total to me $3,700. If I were to sell the options at the posted bid, I'd receive $3,800 less one $100 commission --> total to me $3,700. Since it was neutral w.r.t. each scenario, I decided to try to pick up fifty bucks by buying 1,000 shares at the bid ($6.05) instead of at the ask, and exercise. This didn't work, and the market moved up (against me) a nickel after about ten minutes (stock now 6.10 - 6.15, options 3.75-4.00). I figured that the options specialist likely had lower commission rates than I did, so I figured I'd give him the opportunity to make $50 (but I think I made a mistake and priced my ask a nickel too dear -- see below). At this point the market for the options was 3.75 - 4.00. I offered my 10 puts at 3.85, but he didn't take them (I then realized that he'd have to buy the stock at the bid, 6.10, in a thinning market that only had 500 shares bid at 6.10, 1200 offered at 6.15) --> so I think I know why he didn't bite. What if I had offered my options at $3.80? He could have bought 1,000 shares at 6.15, bought my 10 options for $3800, exercised, and had $50 before commissions. Would this have made sense for him to do, or is this just not enough to be worthwhile? Instead of taking his $3.75 bid ($3750 - $100 comm. == $3650 net to me), I ended up buying 1,000 shares myself at $6.15 ($6150 + $100 comm. == $6250), exercising the 10 options ($10,000 - $100 commission = $9900), for net proceeds to me of $3650. This was neutral to me, but since it earned my broker two commissions instead of one (including an equity trade on which he makes more money), I went that way. My question to you Porter, is whether there was anything different that would have been attractive enough to the specialist so that I might have done the trade through him, and perhaps have made another $50? Or was this trade just intrinsically too thin to have been worth his bother? - Daniel