'In-The-Money' Options

[Smack]

Hello all.

I am still trying to learn about options by reading a lot, but still not sinking in. Hoping you can help out here...

This screen snapshot shows the BHP.ADR options list for Jan 2016:

http://www.marketwatch.com/investing/stock/bhp/options

1) Can you explain why those highlighted bids/asks are noted as 'in the money'?
2) Why are the areas outside of these highlighted areas considered not 'in the money'?
3) Why are there significantly more bids/asks still 'in the money' for PUTS instead of CALLS?


Smack

 

[pixel]

Hello all.

I am still trying to learn about options by reading a lot, but still not sinking in. Hoping you can help out here...

This screen snapshot shows the BHP.ADR options list for Jan 2016:

http://www.marketwatch.com/investing/stock/bhp/options

1) Can you explain why those highlighted bids/asks are noted as 'in the money'?
2) Why are the areas outside of these highlighted areas considered not 'in the money'?
3) Why are there significantly more bids/asks still 'in the money' for PUTS instead of CALLS?


Smack

In, at, and out of the money are terms used relative to the stock's current share price.
For example, if I'm talking about a BHP $20 Call option, it can only be exercised if, at the time of exercising, the motherstock (BHP.AX) is closing at or above $20.
If, at any time, BHP trades below $20, the option is out of the money. Above, it's in the money.With Put options, it's the other way around.
So, put simply: If the option can be exercised, it's IN the money, it not, it's OUT of it.
(AT the money is the rare special case where strike and share price match.)

 

[Smack]

Thanks Pixel.

Am i right in saying that any of the ITM PUT options can be sold before expiry - thereby pocketing the difference between exercise price and underlying stock price?

Ignoring all other factors and just hypothesising atm, based on the that option chain summary I highlighted in OP, where do you see the the option squeeze price be at upon expiry on 28/01/16?

Smack

 

[wayneL]

In reference to your question in OP, look up put-call ratio.

In reference to your question above - no. There are no free rides in options and for you to pocket any option intrinsic value (the difference in price between underlying and strike price of ITM options), there will need to have been a favourable move in the underlying.

 

[Smack]

Thanks Wayne,

Dumb question RE: those PUT option holders at strike price for $100 for BHP on 28/01/16....

What result will those PUT option holders receive if they :

(i) hold wait till option expiry on 28/01/16?

(ii) exercise their right to sell their PUT options before expiry (and why would anyone want to buy these PUTS at $100?)


Smack

 

[pixel]

Thanks Pixel.

Am i right in saying that any of the ITM PUT options can be sold before expiry - thereby pocketing the difference between exercise price and underlying stock price?

Ignoring all other factors and just hypothesising atm, based on the that option chain summary I highlighted in OP, where do you see the the option squeeze price be at upon expiry on 28/01/16?

Smack

There are two varieties of options: European and American.
Only American-style options can be exercised at any time up to expiry; European options can only be exercised on the expiry date. Usually, you can determine which is which by the strike price: European ones strike at 1c above Americans.
Extract from ANZ example:
Call $27.00 884
Call $27.01 308
Call $27.50 3,933
Call $27.51 155
Call $28.00 3,375
Call $28.01 854
Call $28.50 7,063
Call $28.51 1,375
Call $29.00 13,366
Call $29.01 2,749
Call $29.50 6,660
Call $29.51 860

 

[pixel]

Thanks Wayne,

Dumb question RE: those PUT option holders at strike price for $100 for BHP on 28/01/16....

What result will those PUT option holders receive if they :

(i) hold wait till option expiry on 28/01/16?

(ii) exercise their right to sell their PUT options before expiry (and why would anyone want to buy these PUTS at $100?)

Smack

There is no telling (today) when the Puts have been written (the highest are pitched at $39.01, not $100)
They could have been written and sold months ago when BHP was trading around $30. Bear in mind that the buyer would have paid a significant premium. Had the trade occurred on Christmas Eve, the premium for a $39.01 Put option would have been $20.595.
The writer who would have to buy at $39.01 will have banked the premium - say $20.51 - and therefore end with a book value for the exercised shares of $39.01 minus $20.51 premium, i.e. $18.50.
But he may have sold the Puts when BHP traded around $17; the option premium could then have been $22.

For the buyer, the maths work out similarly: Had the premium been $20.51, exercising it (selling the mothers at end of January) at $39.01 would give an effective sale price of $18.50; but had the premium been $22, the sale price will come out at net $17.01.

 

[Smack]

Thanks Pixel.

Is there any way of knowing if all of the volume for certain options have already been exercised by viewing the option chain list summary at any time?

For the USA-style options that are traded in Australia, which expiry date do these trade under for the stock (ASX controlled or CBOE / USA controlled)?

What is the latest time that all options in Australia can be traded on expiry day?

This link shows Australian variant BHP Options on ASX site:
http://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=BHP

Can the same variant be viewed in the same way as displayed as the USA variant for BHP - such as :
http://www.marketwatch.com/investing/stock/bhp/options

If so, which site can display the Australian variant BHP like this?

What is the 'max-pain' point indicated on that BHP OI graph of yours?

What value do you place on the PUT-CALL ratio and how often do you use it to gauge direction of underlying motherstock?


Smack

 

[pixel]

Thanks Pixel.

Is there any way of knowing if all of the volume for certain options have already been exercised by viewing the option chain list summary at any time?

Open Interest means sold and not yet exercised.

For the USA-style options that are traded in Australia, which expiry date do these trade under for the stock (ASX controlled or CBOE / USA controlled)?

I only deal with Australian (ASX-listed) options.

What is the latest time that all options in Australia can be traded on expiry day?

afaik until they expire - and you can find a counter party.

This link shows Australian variant BHP Options on ASX site:
http://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=BHP

Can the same variant be viewed in the same way as displayed as the USA variant for BHP - such as :
http://www.marketwatch.com/investing/stock/bhp/options

as above: I don't work in US Markets.

If so, which site can display the Australian variant BHP like this?

What is the 'max-pain' point indicated on that BHP OI graph of yours?

approx. $17,35 (i.e. the gap between $17.27 and $17.49)

What value do you place on the PUT-CALL ratio and how often do you use it to gauge direction of underlying motherstock?

none specifically: it's all shown in the chart.
Compare the relative sizes of the green (excess Puts), red (excess Calls), and blue (Total Interest) bars.

Smack

 

[Smack]

Thanks Pixel.

How did you deduce the 'max-pain' point to be approx. $17,35 (i.e. the gap between $17.27 and $17.49)?

Which of these options are Australian listed options:
http://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=BHP

Is there any other link / provider that shows all these options in a better profile (with all CALLS on one side and all PUTS on the other side)?


Smack