39 lines
2.9 KiB
Plaintext
39 lines
2.9 KiB
Plaintext
28 Part I: Bask Properties of Stock Options
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l. Options expire on the Saturday following the third Friday of the expiration
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rrwnth, although the third Friday is the last day of trading. In general, however,
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waiting past 3:30 P.M. on the last day to place orders to buy or sell the expiring
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options is not advisable. In the "crush" of orders during the final minutes of trad- ,
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ing, even a market order may not have enough time to be executed.
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2. Option trades have a one-day settlement cycle. The trade settles on the next busi
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ness day after the trade. Purchases must be paid for in full, and the credits from
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sales "hit" the account on the settlement day. Some brokerage firms require set
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tlement on the same day as the trade, when the trade occurs on the last trading
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day of an expiration series.
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3. Options are opened for trading in rotation. When the underlying stock opens for
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trading on any exchange, regional or national, the options on that stock then go
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into opening rotation on the corresponding option exchange. The rotation system
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also applies if the underlying stock halts trading and then reopens during a trad
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ing day; options on that stock reopen via a rotation.
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In the rotation itself, interested parties make bids and offers for each particular
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option series one at a time - the XYZ January 45 call, the XYZ January 50 call,
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and so on - until all the puts and calls at various expiration dates and striking
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prices have been opened. Trades do not necessarily have to take place in each
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series, just bids and offers. Orders such as spreads, which involve more than one
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option, are not executed during a rotation.
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While the rotation is taking place, it is possible that the underlying stock could
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make a substantial move. This can result in option prices that seem unrealistic
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when viewed from the perspective of each option's opening. Consequently, the
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opening price of an option can be a somewhat suspicious statistic, since none of
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them open at exactly the same time.
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Also, it should be noted that most option traders do not trade during rotation, so
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a market order may receive a very poor price. Hence, if one is considering trad
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ing during rotation, a limit order should be used. ( Order entry is discussed in
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more detail in a later section of this chapter.)
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4. When the underlying stock splits or pays a stock dividend, the terms of its options
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are adjusted. Such an adjustment may result in fractional striking prices and in
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options for other than 100 shares per contract. No adjustments in terms are made
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for cash dividends. The actual details of splits, stock dividends, and rights offer
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ings, along with their effects on the option terms, are always published by the
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option exchange that trades those options. Notices are sent to all member firms,
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who then make that information available to their brokers for distribution to
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clients. In actual practice, the option strategist should ascertain from the broker |