Call Contracts And The Market Favors These Special Options




Provided By optiontradingstrategies.org

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.

Holidays

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.

The 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.

The 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.

IMPORTANT: Interested In Trading Options? Discover How To Trade Options Market With A Secret Trading Formula Only a Handful Of Traders Know. Click Here For Our Options Trading System.

 

copyright 2005 optiontradingstrategies.org
www.meta-formula.com