NAB - I am confused: Help!

[JetDollars]

Dear All,

On Friday 12/11/04 I bought 2 NAB Jan Put option. $0.69 per shares. The time that I bought the option NAB was trading at $28.45.

This morning (Mon 15/11/04) NAB drop down to as low as $27.52. I was quite happy to sell it when NAB about $27.70, but when I check the option spread, it is $0.58 - $0.61.

I don't understand, how can the out of the money option cost more than in the money option?

is this to do with NAB go ex-dividend? does the option price already factor in the dividend amount? if it does, is there a formulae to do this.

Thank you for your help and comments

 

[Bingo]

Re: NAB - I am confused | Help!

Dear All,

On Friday 12/11/04 I bought 2 NAB Jan Put option. $0.69 per shares. The time that I bought the option NAB was trading at $28.45.

This morning (Mon 15/11/04) NAB drop down to as low as $27.52. I was quite happy to sell it when NAB about $27.70, but when I check the option spread, it is $0.58 - $0.61.

I don't understand, how can the out of the money option cost more than in the money option?

is this to do with NAB go ex-dividend? does the option price already factor in the dividend amount? if it does, is there a formulae to do this.

Thank you for your help and comments

Yes the dividend is factored into the option price. If you look at the option pricing models then the variables include the dividend and also the interest rate as well as the more obvious varables. In fact since NAB fell less than the dividend then you expect that your options would go down in price.

I trade options all the time and getting dividends right is the most difficult thing.

I suggest that you look at the ASX site. Under ASX markets choose options, then under calculators and tools select theoretical options price calculator. Then on the next sceen select theoretical option price calculator again. From thre drop down pick your stock. Then pick which series you are interested in (hold down the ctrl key to pick more than one). Now you can change the dividend and press recaluate to see the impact of a change in dividend on the theoretical price. You can change other variables.

This is a great tool if you are going to trade options and it is free.

There is a demo and loads of other critical information also available.

Bingo

 

[still_in_school]

Re: NAB - I am confused | Help!

Hi JetDollars,

you should have told me, about NAB, i been straddling this baby all week long... but its just one of those stocks... that has plenty of violatility lately in the last 2 weeks... ( i could have shared some positions wth you)

Cheers,
sis

 

[JetDollars]

Re: NAB - I am confused | Help!

Thanks for your responded Bingo and SIS.

Last night I did a lot of reading in ASX and found the solution that I am looking for which exactly how Bingo described.

Thanks Bingo.