Options are never made to expire on a known holiday. The contract
will be made to expire on the next business day after the holiday.
Offering of Special Options
Besides arranging for the purchase and sale of new options on order,
some option-dealers carry an inventory of option contracts which
they offer for resale through newspaper advertisements, as on page
32 or by quotation sheets sent through the mail. The offerings may
be limited in quantity and are offered subject to prior sale or
price change. Originally, these contracts are bought by an option-dealer
in the expectation and hope that he can resell them. If the dealer
holds a Call contract and the market favors him, he might very well
be able to dispose of the contract at a profit. If the market declines,
the option may prove to be a complete loss to the dealer, but this
is a business risk that he takes.
Advertising Or Offering Of Special Options
The above are advertisements
offering special options. The one on the left is from The New York
Times and the one on the right from the Wall Street Journal, both
of the June 2, 1959, issues.
The contracts shown in
the above advertisements are offerings, not bids. Here is the explanation
of exactly what the ad means: the first item under "Put Options"
means that on receipt of $700, the option-dealer will deliver a
Put contract giving to the buyer of the Put (the purchaser or anyone
to whom he transfers the Put) the right to deliver or sell to endorser
or guarantor of the option 100 shares of U. S. Steel at 95½
any time before December 8. At the time of the advertisement, the
stock was selling at 94%, so the Put option was ¾ of a point
above the market price. At the same time, a newly made 6-month Put
option at the market price of 94¾ would have cost about $750,
so by comparison, the Put at 95½ for $700 was more attractive,
since the obtainable price was $75 higher and the cost of the option
$50 less. Comparison should be made between regular market options
and special options that are advertised, and option-dealers, when
asked to quote a price for an option, usually offer special options
if they are available.
The converse of the Put
option on U. S. Steel at 95½ which was offered when STEEL
was selling at 94¾ is the Call offered in The Times ad on
Jones & Laughlin at 715/8, running until August 21 for $650.
At the time this Call
was offered, the stock was selling at 75, or 33/8 points above the
Call price, and the Call had 82 days to run. In other words, the
Call already showed a gross profit of 33/8 points. Compare such
an offering if you will with a newly made 90-day Call contract at
the then current market price of 75, which was offered for $525.
To make a profit on the newly made option, the stock would have
to advance above 80¼ (not counting stock-exchange commissions).
To make a profit on the special Call, the stock would have to advance
to 781/8- That is, 715/8 —the Call price plus the $650 premium
paid for the option.
Notice that special options
are usually offered at a price different from the market price of
the stock. Newly made contracts are usually made at the market price
of the stock at the time the contract is arranged.
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