Trading Options on C between Pre and Post Split
Trading Options on C between Pre and Post Split
Prior to the reverse split I (rightly) predicted that the stock was going to have a rough go of it over the next few weeks. I held a C 4.5 puts. As I the stock dropped I legged into the 10/100 June 4.5-4 put spread by selling the 4 puts at .09. You may be asking, why in the world did I trade the 10/100 4 puts instead of the regular 4 put. Simple, the 4 puts was better bid, at the time I could, sell the 4 puts at .09, or sell 1 June 40 puts for .85. A difference of 5.00 of premium per contract.
At any given time there is a serious arbitrage between C 10/100 and the C Regular Options (see below):
Looking just at the 40ís and 45ís and the 4ís and 4.5ís traders can clearly see that there is edge in trading spreads, or trading individual legs. The key is traders need to do the math on getting in to the trade including commission, I do not say out, because like me traders can use the regular options to take off a trade. For those of you saying that 5 dollars is hard to cover, there are some discount brokers out there that can get a trade done for a small fee and .10 a contract, for 5.00 the trader can improve on his or her trade.
Why do I write this, most traders do not have low enough commission to arbitrage, however most traders do have low enough commission to do that math on a specific trade that he or she may be trying to enter. You may be afforded the chance to spend less or receive more when trading C options. Take the time to do the math.
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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