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Zecco.com » General Investing » Options Trading » Too good to be True?
Last post 05-10-2008, 12:56 AM by Stardust. 4 replies.
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  •  05-09-2008, 4:06 PM 28814

    Too good to be True?

    Reply Quote
    Seriously, I have to repeat my previous post.  Is this situation too good to be true?  Is it a typo, or a computer screw-up?  Why aren't people jumping on this?  Once again, please someone explain this to me: 

    "Can someone please explain the price of the call option, AMREU (7.50), at $4.60.  How can this price be so far out-of-line with all the other options for AMR???"

  •  05-09-2008, 5:05 PM 28818 in reply to 28814

    Re: Too good to be True?

    Reply Quote

    It's just so because nobody is interested in it. There are no buyers or sellers. If there are no sellers / buyers, the prices are irrelevant, and the option is illiquid.     

  •  05-09-2008, 5:31 PM 28824 in reply to 28814

    Re: Too good to be True?

    Reply Quote
    perfect answer, nobody trades it.

  •  05-09-2008, 8:54 PM 28834 in reply to 28824

    Re: Too good to be True?

    Reply Quote
    But, I have seen examples of a single call or put in the volume columns of various options.  If there is only 1 buyer or 1 seller, isn't the market maker obligated to make the trade?

  •  05-10-2008, 12:56 AM 28842 in reply to 28814

    Re: Too good to be True?

    Reply Quote
    I have seen this type of situation all the time.  Like other people already said, there wasn't enough buyers and sellers.  Whenever there isn't enough buyers or sellers, everyone want to sell or buy at their best price.  Therefore, if you want to buy at the OFFER price, you get it instantly !   If you want to sell at the BID price, you get it sold instantly too.

    Here is an example of an actual trade that I made on May 8 (you can lookup in my profile if you wan to):

    I bought +WWRAF (WFC Jan 2010 30 CALL) in the morning at the OFFER price of  $4.50.  Because I was willing to buy at the offering price, I got it instantly without any problem.   Around noon, WFC went up and the Bid price for +WWRAF  went up  to $4.6 and the Offer price went up to $4.8,  so I  sold my +WWRAF option at $4.6 instantly without any problem.   Because there wasn't any buyer, selling it at $4.7 or higher was impossible.   Now, I wish that I have held on to +WWRAF until this morning because its BID price went up to 4.8 and the OFFER price went up to 5.
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