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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Dnorman who wrote (8524)	9/11/1998 1:35:00 PM
From: Douglas Webb	Respond to of 14162

I want to buy back some options that I sold, the stock is trading at 17 and the options were written for Oct 35. I want to take my profits the bid is 1/2 the ask is 1 1/8 with 770 contracts outstanding. Do I buy back at the bid or the ask? This MM wouldn't accept my bid of 7/16. That's a huge spread, especially for an option with a high open interest, and just a month away from expiration. Unfortunately, you have to pay the ask, not the bid. Marketmakers buy at the bid, and sell at the ask. The rest of us buy at the ask, and sell at the bid. Of course, if you put your order in between the bid and ask, you might get filled. But 7/16? You'd have to wait for a big price drop before the ask got that low. Doug.

To: Dnorman who wrote (8524)	9/11/1998 8:50:00 PM
From: AurumRabosa	Read Replies (1) \| Respond to of 14162

Dennis, Both the bid & ask are total ripoffs for this option. An Oct 35 call with the stock at 17 has an implied volatility of 170.3% at $0.50 and 215.3% at $1.125. Did this stock go straight down? You might want to look at other Oct calls of that stock and calculate the IV which you can do at numa.com Unless you have a typo in your post I don't think you should have to pay more than $0.03 for this deep out-of-the-money call. If you don't mind, what's the underlying stock? Do you think it'll come back to 35 by Oct 17th? If not, why buy it back unless you want to dump the stock, just let it expire worthless.

To: Dnorman who wrote (8524)	9/11/1998 9:05:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Wow Dnorman, That is one heck of a spread between bid 1/2 ask 1 1/8. Generally, the MMs will split the difference with you. Try 5/8s to give the MM a 1/8 profit incentive off the 1/2 if you are in a hurry. Otherwise, just milk it down. Unless you think the stock will reverse on you. The bid is what the MM is working off. The ask is what the street is asking. With both bid and ask price the important data you need to know is the size of the blocks on both sides of the spread. Example, bid 1/2 (1,000) ask 3/4 (8,000) Price is moving up! Think of the bid price as buyers and the ask price as sellers! With that in mind, our example has 8,000 shares ready to sell at 3/4. The movement is being forced upwards! Why? Because there are more blocks of stock on the ask price so there are more sellers than buyers! Thus, the price will eventually back off! On the other hand, if you reversed the numbers to 8,000 at bid 1/2 and 1,000 at ask 3/4 the price will be forced downward. Why? Because there are more buyers at the lower price than sellers. The third element is the ticks which really tells you what is going on. Up ticks followed by blocks of large stock purchases and a gradual lowering in price is the sign for shorting. Usually, the up ticks are 200 to 500 shares of bait followed by 2,000+ purchases. They dummy up the price in order to short. By the way! My 300 shares of CATP short position was covered at open at $25 1/2. So, two days and $300 dollars profit. Not what I was looking for. Hey, a profit is a profit! I'll take it!