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

To: sean sanders who wrote (58330)	1/31/1999 12:26:00 PM
From: HiSpeed	Respond to of 58727

If you are playing a lightly traded option, the MM will often sell to you at the ask and buy from you at the bid. So if you are trading 'illiquid' options, that is often the only way to get in and out of a position. What bites, is that you are in the hole the amount of the spread the instant you buy. But if you are confident of the underlying stock's movement in the direction you are betting, good money can still be made.

To: sean sanders who wrote (58330)	2/1/1999 1:10:00 AM
From: Art C.	Read Replies (1) \| Respond to of 58727

Peter----Perhaps you can find you answer at this site: cboe.com Good place to learn about options. Art

To: sean sanders who wrote (58330)	2/1/1999 11:31:00 AM
From: otter	Respond to of 58727

My two cents: Any option listed with a price on it is, by definition - liquid - although at a price you might not appreciate. It's the role of the market maker to ensure liquidity - and accept the trade if there isn't a third party at the time. Typically, when you buy an option, you buy it at the ask price and when you sell it, you sell it at the bid price. Same as with stocks. I suspect that thinly traded options have somewhat more room for negotiating price than more highly traded options - The spread between bid and ask is greater than with more heavily traded securities.... But remember - the spread is how the MM makes $. If you want to buy an option at a defined price, you should make a limit order just as you do with any other security. You issue a market order, you guarantee that you buy what you want to buy at the market price the instant the order is executed - which may or may not be the same as the price quote you just received. I've had it all three ways - at - slightly over - and slightly under the ask price. The only way to stop that is a limit order - but the downside is that it might not be filled........

To: sean sanders who wrote (58330)	2/1/1999 2:27:00 PM
From: James Joyce	Respond to of 58727

Thinly traded options often will have no buyers or sellers at the price you would like. However there may will almost always be buyers and sellers at a price discount or premium. If you are willing to pay a high price for a call then there will be someone willing to sell it to you but you would end up paying a price you might find unattractive. Best option in this case is to figure out what price you would be willing to pay and then put in a bid. The market will sort out the trade for you or you will get no trade. Same situation happens on both buy and sell side. If there is little liquidity in the option then you have a high risk of not being able to close your position when you want to while the stock is moving on you. example: if you buy jan 00 xyz calls and want to bail out after the stock drops a few points you may find that there are no buyers at all for the jan calls except at a very low price. As a new options trader you may want to consider trading some more liquid options. Suggestion : invest the $50 or so on McMillan's book "options as a strategic investment" as it will cover this for you. Good trading: James

To: sean sanders who wrote (58330)	2/1/1999 3:13:00 PM
From: Soumen Barua	Read Replies (1) \| Respond to of 58727

Hi, I also recommend that before you start investing in options you should do some paper trading (at least for a year). Always buy at ask and sell at the bid. Start with 10k paper money and keep paper trail of your trades. (You should not start with 100k paper money because that is quite a big amount for options and you may not be able to buy at the ask if you were trading options on a particular issue in real life). There is no simple answer to your question. If you check the quote for any option and it shows you bid and ask, that is what you should expect as a buyer or seller. However there are sometimes no bid closer to expiration and that is why paper trading is important to find out all the nuances that goes on with options trading. There are some formulas about how options are priced and you can check them out in the books or internet sites. The most important factor is the volatility. Therefore thinly traded slow moving options are cheaper compared with a highly volatile heavily traded options. That is why trading stocks is better for highly volatile stocks because you don't have to pay high premium associated with their options (VIX). Personally I would not recommend trading options because it is far too risky for new investors. For example, suppose you buy xyz stock at 100 and immediately sell them at 100. You lose nothing except the commission. However, if you buy options at 100 you will not be able to sell at 100 because the spread will not allow you to do that. Therefore even if the stock trades in a narrow range (100-101) the option prices will not reflect that change and you will still lose money if you tried to sell at the bid. Good luck.