First options trade on Commsec

[Bugalugs]

Hi all,

Good to be on the site! This is my first post

I'm new to trading having completed my first few trades in the last 3 months. I am using Commsec, and am now familiar with the website layout for standard purchase/sale of stocks however I would like to make my first options purchase this week and do not fully understand the options trading screen, hoping someone who is familiar with it may have some helpful tips? failing that I can always call Commsec this week but thought I would try here first.

I am interested in a call position on BHP ending April next year. I have attached an image of the current options screen for at the money/in the money calls for April 2013. The two columns on the screen I do not understand are (screen shot attached):

Open Interest, and
Volume

No Idea what Open Interest means?
Is volume the amount available for purchase, or recent volume sold? Also is it contracts (i.e. #1 in volume column = 100) or individual options making up that contract?

Is there a way on Commsec to see what the Volatility is to time an entry better? or do I need to go elsewhere to find that? If so, any1 know a free site for volatility info?

Last question, from the call spreads available and my limited options knowledge, I have concluded that the most attractive entry would be the strike price @ 36.50 for 0.88 (current share price is 36.07), would that be a fair assumption or do more experienced traders like the look of one of the other entry options better? Just trying to get a decent grasp on this before making a purchase this week.

Thanks so much in advance for any tips - much appreciated !!!!

Bugalugs

 

[YMI]

Open Interest, and
Volume

Hi, don’t know anything about commsec but..
I think it tells about liquidity. This would be essential when you’re planning to sell short but probably not so important when you buy long. If you search the net, you’ll probably find some good info and better explanations.
Personally, I would buy in the money only because it promises higher profit if the underlying moves in the right direction but I am also new to this… so it’s not a guarantee what I say.

 

[cbc1]

BUGALUGS

It is an honor to help u!.

I use comsec.

Open interest is the current number of contracts on market. Yes in contracts (100 units). Volume is the number of contracts traded for that day (100 units). Just like shares volume. You should type in the security (bhpwr7) into the search. This provides useful information. Firstly it answers your question about availability because it shows you what is available. Also the course of sales. Which will give you a fair idea of what price you should bid at (subsection).

I can't really help with volatility. Because I've never looked at a volatility graph. I think free volatility graphs are like trying to find the holy grail. They are provided with optionsxpress.

You know you get to select the price right? I believe that most people set this around the mid-point of the spread.

Your decision to buy the first call option above the underlying security is a good decision. Not taking on to much risk... I'm well up from JUNE and I have always brought the first call / put option.

Ok.. now to throw you in the DEEP END.... before you buy a contract it is time to GET DOWN AND DO SOME SERIOUS NUMBER CRUNCHING TECHNICAL ANALYSIS :

Go to www.asx.com.au then go down the bottom and click on calculators under the education & resources section. Click on Options theoretical price calculator, click again on options theoretical price calculator.. Select BHP from the drop down menu. ( this list is also useful because it shows all the companies with options availability ) . Then scroll down till you find the BHPWR7 contract. Confused yet? Thats only half of it... click on the little magnifying glass off to the right hand side and voila. The important thing for you here is "your price" on the LHS. Gives your a good guide of what price to enter into (normally) plus it gives current volatility . Not historical volatility tho.

You should enter into a contract immediately if you bid at the fair value. Especialy at the fair value

Feel free to PM me.....

Best of luck.

 

[Bugalugs]

Wow! Thanks Cbc1 - your a champ

That covered everything I was asking!

I did all the asx and commsec options tutorials etc, but they never explained how to read that table...

I followed your tips and went through the process on the asx calculator, that was great and to know about the drop down list of all the options stocks - easy one stop shop to browse and get familiar with the list! The asx calculator came up with "your price" of 1.32 for that option we mentioned (bhpwr7). Does that mean the previous person who got it at .88 got a bargain? or just that the stock/option has gone up since the last contract was purchased so its now a little more expensive?

Ok, so now I know "your price", would it be correct to say that I should wait till open of trade and look at the spread and compare that to "your price" to determine if the entry price is value or too expensive is that right? and bid accordingly..

Example, "your price" of 1.32 on asx, and say a spread on commsec of 1.15 (bid) - 1.45 (ask). If I put a bid in for 1.20 and got some contracts would that generally mean I got a good price as it was .12 below the listed your price? generally speaking does that sound right?

Also when you said "You should enter into a contract immediately if you bid at the fair value. Especialy at the fair value" by fair value do you mean the same thing as "your Price"? or is fair value something else? couldnt see fair value listed on the asx calculator screen

Thanks again Cbc1 !!!! much appreciated mate, feel like I'm going from total noob to yellow belt noob.

Bugalugs

 

[cbc1]

Bugalugs,

Confusing calculator... now I'm confused. Says one thing and does another.... Just stick with the spread, buy at the mid-point of the spread or just below the mid-point of the spread. Also keep an eye on the course of sales to give u a guide. I trade straddles so I don't get the luxury of playing the market.... I have to enter into the call and put options IMMEDIATELY. Otherwise I could lose 20% just taking off from the airport!!! I buy in at the mid-point of the spread and get taken up straight away every time.

Another thing I really want to point out is that if you are planning to hold the contract through till April you will cross over a dividend date (4/3/2012). This is shown on the calculator for a reason. Before I enter into any position I check the dividend date and if there is a dividend in that month ( I trade by month ) I throw that share price out. Wait till you have some experience till you tackle that. Or just sell the contract a few days before then enter back in a few days after the date. In theory the date of the dividend is the worst day of the year to buy/hold a call option. The dividend date is keyed into the option pricing formula (in days to go).

The fair value is the realistic value of the option. Generally the mid point of the spread. This will be a different number from the theoretical value. If BHP was having a good day (say up 3% and climbing at 12:00 o'clock) you could expect to pay a much higher price on your call.

In general :

Theoretical price / value : The value come up with when the asx uses the options pricing calculator.

Fair Value : The price come up with taking into account different variables (including share price daily movement, dividend dates, daily volatality )

This is where that calculator can be confusing. It says down the bottom of the page that the "your price" will display the last traded price which should av displayed 0.88. Unless it reset after close. I trade with 1 month securities with lots of volume (50k daily turnover). It doesn't normally display the last trade. Confusing.

 

[cbc1]

Freakin wouldn't let me edit......

The fair value is also called the market value.