35 lines
2.3 KiB
Plaintext
35 lines
2.3 KiB
Plaintext
146 • The Intelligent Option Investor
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Last
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This is the last price at which the associated contract traded. Notice that
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the last price associated with the far in-the-money (ITM) strikes ($20, $21,
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$22) and one of the far out-of-the-money (OTM) strikes ($37) have the
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letter “C” in front of them. This is just my broker’s way of showing that the
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contract did not trade during that day’s trading session and that the last
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price listed was the closing price of the previous day. Closing prices are not
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necessarily market prices. At the end of the day, if a contract has not traded,
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the exchange will give an indicative closing price (or settlement price ) for
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that day. The Oracle options expiring on August 16, 2013, and struck at
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$20 may not have traded for six months or more, with the exchange simply
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“marking” a closing price every day.
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One important fact to understand about option prices is that they
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are quoted in per-share terms but must be transacted in contracts that rep-
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resent control of multiple shares. The number of shares controlled by one
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contract is called the contract size . In the U.S. market, one standard con-
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tract represents control over 100 shares. Sometimes the number of shares
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controlled by a single contract differs (in the case of a company that was
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acquired through the exchange of shares), but these are not usually avail-
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able to be traded. In general, one is safe remembering that the contract size
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is 100 shares.
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Y ou cannot break a contract into smaller pieces or buy just part of a
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contract—transacting in options means you must do so with indivisible
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contracts, with each contract controlling 100 shares. Period. As such, every
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price you see on the preceding screenshot, if you were to transact in one of
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those options, would cost you 100 times the amount shown. For example,
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the last price for the $31-strike option was $1.65. The investor who bought
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that contract paid $165 for it (plus fees, taxes, and commissions, which are
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not included in the posted price). In the rest of this book, when I make
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calculations regarding money spent on a certain transaction, you will al-
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ways see me multiply by 100.
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Change
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This is the change from the previous day’s closing price. My broker shows
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change only for contracts that were actively traded that day. It looks like |