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Determining the price of an option when it hasn't been traded recently

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Determining the price of an option when it hasn't been traded recently

Where to find LEAPS option quotes (full chain)? CBOE & Yahoo! Finance not workingAre option contracts subject to mark to market rulesTotal price of (AAPL option strike price + option cost) decreases with strike price. Why?How does the S&P500 option chain relate to the S&P ETF options?What happens to a traded call option on acquisition of companyWhen buying a call option, is the financial stability of the option writer relevant?Why doesn't someone choose the lowest Strike Price when choosing an CALL option?Stock options: payoff diagrams assume European style exercisingSelling in the money optionDoes option demand influence option price?

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2

I am looking at MDB LEAPs. Right now the price of the stock is up about 7% from open. Some calls are up, and some puts also show up, which I guess is because they haven't traded today (I am using barchart.com as the reference.) So I think what I am seeing is not the true price (some calls are still "down" even though the stock price is up.)

If I want to buy an option that hasn't traded today (or during the past few days), do I have to guess the price (or try and derive it via a model), or do I have to wait for someone else (a market maker) to establish the price?

options

share|improve this question

asked 8 hours ago

horse hairhorse hair

1,88721832

• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Presumably you can make an offer to buy, and see if any seller is willing to sell at your price.
  
  – The Photon
  7 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  Are you familiar with Black-Scholes?
  
  – Acccumulation
  5 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  @Acccumulation - that's the 'model' I mentioned above. I just didn't type it out because I didn't know off-hand how to spell 'Scholes'. I thought about typing 'BS' but that has negative connotations
  
  – horse hair
  3 hours ago
  

  
  
  
  

add a comment | 

2

I am looking at MDB LEAPs. Right now the price of the stock is up about 7% from open. Some calls are up, and some puts also show up, which I guess is because they haven't traded today (I am using barchart.com as the reference.) So I think what I am seeing is not the true price (some calls are still "down" even though the stock price is up.)

If I want to buy an option that hasn't traded today (or during the past few days), do I have to guess the price (or try and derive it via a model), or do I have to wait for someone else (a market maker) to establish the price?

options

share|improve this question

asked 8 hours ago

horse hairhorse hair

1,88721832

• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Presumably you can make an offer to buy, and see if any seller is willing to sell at your price.
  
  – The Photon
  7 hours ago
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  Are you familiar with Black-Scholes?
  
  – Acccumulation
  5 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  @Acccumulation - that's the 'model' I mentioned above. I just didn't type it out because I didn't know off-hand how to spell 'Scholes'. I thought about typing 'BS' but that has negative connotations
  
  – horse hair
  3 hours ago
  

  
  
  
  

add a comment | 

I am looking at MDB LEAPs. Right now the price of the stock is up about 7% from open. Some calls are up, and some puts also show up, which I guess is because they haven't traded today (I am using barchart.com as the reference.) So I think what I am seeing is not the true price (some calls are still "down" even though the stock price is up.)

If I want to buy an option that hasn't traded today (or during the past few days), do I have to guess the price (or try and derive it via a model), or do I have to wait for someone else (a market maker) to establish the price?

options

share|improve this question

asked 8 hours ago

horse hairhorse hair

1,88721832

share|improve this question

asked 8 hours ago

horse hairhorse hair

1,88721832

share|improve this question

asked 8 hours ago

horse hairhorse hair

1,88721832

asked 8 hours ago

horse hairhorse hair

1,88721832

asked 8 hours ago

horse hairhorse hair

1,88721832

2 Answers
2

active

oldest

votes

5

There is no "true price". There is the last price an option traded at — but as you have discovered, if a particular option is thinly traded (and many options are thinly traded) then the last price quickly gets stale and isn't useful for informing what price you might actually fill at for an order you're contemplating.

You need to look instead at the quoted bid and ask prices. If you want to buy an option, you would likely end up paying the quoted "ask" price if you were to enter a market buy order. If you want to sell an option, you would likely end up getting the quoted "bid" price if you were to enter a market sell order. You can also enter your own price in a limit order.

share|improve this answer

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

add a comment | 

2

The reason that the calls appear to be down is because due to lack of trading, the last price occurred yesterday or earlier at a lower stock price. For example, the Jan '21 145c is $45.30 x $47.40 with a last trade of $39.90 . It's a stale quote.

There are lots of issues with these LEAPS. They have low Open Interest, most haven't traded today, the few that have traded are in single digits, the IV is high and the B/A spreads are Holland Tunnel wide. That's a recipe for disaster unless you work the numbers.

The starting point is to determine the midpoint of the spread. For the above option, it would be $46.35. But just to be sure, put that price in a pricing model to make sure that the IV lines up with that of the other options and the average implied volatility for that expiration.

For a somewhat liquid option, the midpoint might be a reasonable price to get a fill, should a counter party show up. For LEAPs like these that trade by appointment, it's possible but not likely.

With B/A spreads like these, you really need to have courage of conviction to buy these LEAPs at the market price. If the call is ATM with approximately a delta of 50, the underlying will have to move up $2 for every $1 of spread that you pay in order to break even.

share|improve this answer

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  If I believe that this stock is over-valued and will correct in the near-long-term, are LEAPs still the best strategy? They're unattractive as you've pointed out, but is there an alternative?
  
  – horse hair
  6 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  The best strategy depends on the size of the move and in what time frame and that can't be known in advance. In a high IV situation, I'd utilize a vertical or a diagonal somewhere near the midpoint in order to offset some/all of the inflated premium. That's fine if the stock cooperates but if it makes the big correction move that you hoped for, you'll wish that you had just overpaid for long puts. A dollar wide spread isn't nice but catching a 10-20-30+ point move will soothe the pain.
  
  – Bob Baerker
  4 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Thanks Bob. Your advice here is always golden.
  
  – horse hair
  3 hours ago
  

  
  
  
  

add a comment | 

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5

There is no "true price". There is the last price an option traded at — but as you have discovered, if a particular option is thinly traded (and many options are thinly traded) then the last price quickly gets stale and isn't useful for informing what price you might actually fill at for an order you're contemplating.

You need to look instead at the quoted bid and ask prices. If you want to buy an option, you would likely end up paying the quoted "ask" price if you were to enter a market buy order. If you want to sell an option, you would likely end up getting the quoted "bid" price if you were to enter a market sell order. You can also enter your own price in a limit order.

share|improve this answer

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

add a comment | 

5

There is no "true price". There is the last price an option traded at — but as you have discovered, if a particular option is thinly traded (and many options are thinly traded) then the last price quickly gets stale and isn't useful for informing what price you might actually fill at for an order you're contemplating.

You need to look instead at the quoted bid and ask prices. If you want to buy an option, you would likely end up paying the quoted "ask" price if you were to enter a market buy order. If you want to sell an option, you would likely end up getting the quoted "bid" price if you were to enter a market sell order. You can also enter your own price in a limit order.

share|improve this answer

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

add a comment | 

There is no "true price". There is the last price an option traded at — but as you have discovered, if a particular option is thinly traded (and many options are thinly traded) then the last price quickly gets stale and isn't useful for informing what price you might actually fill at for an order you're contemplating.

You need to look instead at the quoted bid and ask prices. If you want to buy an option, you would likely end up paying the quoted "ask" price if you were to enter a market buy order. If you want to sell an option, you would likely end up getting the quoted "bid" price if you were to enter a market sell order. You can also enter your own price in a limit order.

share|improve this answer

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

share|improve this answer

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

answered 7 hours ago

Chris W. ReaChris W. Rea

27k1587175

2

The reason that the calls appear to be down is because due to lack of trading, the last price occurred yesterday or earlier at a lower stock price. For example, the Jan '21 145c is $45.30 x $47.40 with a last trade of $39.90 . It's a stale quote.

There are lots of issues with these LEAPS. They have low Open Interest, most haven't traded today, the few that have traded are in single digits, the IV is high and the B/A spreads are Holland Tunnel wide. That's a recipe for disaster unless you work the numbers.

The starting point is to determine the midpoint of the spread. For the above option, it would be $46.35. But just to be sure, put that price in a pricing model to make sure that the IV lines up with that of the other options and the average implied volatility for that expiration.

For a somewhat liquid option, the midpoint might be a reasonable price to get a fill, should a counter party show up. For LEAPs like these that trade by appointment, it's possible but not likely.

With B/A spreads like these, you really need to have courage of conviction to buy these LEAPs at the market price. If the call is ATM with approximately a delta of 50, the underlying will have to move up $2 for every $1 of spread that you pay in order to break even.

share|improve this answer

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  If I believe that this stock is over-valued and will correct in the near-long-term, are LEAPs still the best strategy? They're unattractive as you've pointed out, but is there an alternative?
  
  – horse hair
  6 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  The best strategy depends on the size of the move and in what time frame and that can't be known in advance. In a high IV situation, I'd utilize a vertical or a diagonal somewhere near the midpoint in order to offset some/all of the inflated premium. That's fine if the stock cooperates but if it makes the big correction move that you hoped for, you'll wish that you had just overpaid for long puts. A dollar wide spread isn't nice but catching a 10-20-30+ point move will soothe the pain.
  
  – Bob Baerker
  4 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Thanks Bob. Your advice here is always golden.
  
  – horse hair
  3 hours ago
  

  
  
  
  

add a comment | 

2

The reason that the calls appear to be down is because due to lack of trading, the last price occurred yesterday or earlier at a lower stock price. For example, the Jan '21 145c is $45.30 x $47.40 with a last trade of $39.90 . It's a stale quote.

There are lots of issues with these LEAPS. They have low Open Interest, most haven't traded today, the few that have traded are in single digits, the IV is high and the B/A spreads are Holland Tunnel wide. That's a recipe for disaster unless you work the numbers.

The starting point is to determine the midpoint of the spread. For the above option, it would be $46.35. But just to be sure, put that price in a pricing model to make sure that the IV lines up with that of the other options and the average implied volatility for that expiration.

For a somewhat liquid option, the midpoint might be a reasonable price to get a fill, should a counter party show up. For LEAPs like these that trade by appointment, it's possible but not likely.

With B/A spreads like these, you really need to have courage of conviction to buy these LEAPs at the market price. If the call is ATM with approximately a delta of 50, the underlying will have to move up $2 for every $1 of spread that you pay in order to break even.

share|improve this answer

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  If I believe that this stock is over-valued and will correct in the near-long-term, are LEAPs still the best strategy? They're unattractive as you've pointed out, but is there an alternative?
  
  – horse hair
  6 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  The best strategy depends on the size of the move and in what time frame and that can't be known in advance. In a high IV situation, I'd utilize a vertical or a diagonal somewhere near the midpoint in order to offset some/all of the inflated premium. That's fine if the stock cooperates but if it makes the big correction move that you hoped for, you'll wish that you had just overpaid for long puts. A dollar wide spread isn't nice but catching a 10-20-30+ point move will soothe the pain.
  
  – Bob Baerker
  4 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Thanks Bob. Your advice here is always golden.
  
  – horse hair
  3 hours ago
  

  
  
  
  

add a comment | 

The reason that the calls appear to be down is because due to lack of trading, the last price occurred yesterday or earlier at a lower stock price. For example, the Jan '21 145c is $45.30 x $47.40 with a last trade of $39.90 . It's a stale quote.

There are lots of issues with these LEAPS. They have low Open Interest, most haven't traded today, the few that have traded are in single digits, the IV is high and the B/A spreads are Holland Tunnel wide. That's a recipe for disaster unless you work the numbers.

The starting point is to determine the midpoint of the spread. For the above option, it would be $46.35. But just to be sure, put that price in a pricing model to make sure that the IV lines up with that of the other options and the average implied volatility for that expiration.

For a somewhat liquid option, the midpoint might be a reasonable price to get a fill, should a counter party show up. For LEAPs like these that trade by appointment, it's possible but not likely.

With B/A spreads like these, you really need to have courage of conviction to buy these LEAPs at the market price. If the call is ATM with approximately a delta of 50, the underlying will have to move up $2 for every $1 of spread that you pay in order to break even.

share|improve this answer

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

share|improve this answer

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359

answered 7 hours ago

Bob BaerkerBob Baerker

21.8k23359