• Last Updated:
  • May 28th, 2015 9:52 pm
[OP]
Deal Addict
Jan 2, 2013
1473 posts
302 upvotes
Oakville

Options pricing

For my foray into options trading, when Air Canada (AC) shares were at 11$-something, I bought 1 options contract at a price of 1.20$ (so 120$ plus 10$ commission = 130$.) The contract expires in Oct 2015, with a strike price of 13$. AC shares have hovered around 12.50$ the last month.

Today, they shot up and are at 13.45 right now. If I pull the option chain for the same, the Last price is now at 1.30, bidding at 1.45. So if I was to sell it right now, I'd essentially break even.
[IMG]http://i.imgur.com/Va6qoq6.png[/IMG]

But when I sign into VirtualBrokers, this is what I see :
[IMG]http://i.imgur.com/98qU68G.png[/IMG]

Why is the price at $1.15? And why am I in a 15$ loss?

Also, on a related note -> the "last" price has remained the same all day despite large fluctuations in the share price (it went past the strike price.) Do options prices change by the day, or are they instantaneous, like Stocks/ ETFs?
9 replies
Deal Fanatic
User avatar
Jul 19, 2003
8124 posts
749 upvotes
I don't use VB, but I can tell you this. You should be able to get $1.50+ if that bid/ask is correct. You can try some limit orders to see, unless you want to hold longer.
hi!
[OP]
Deal Addict
Jan 2, 2013
1473 posts
302 upvotes
Oakville
masterhapposai wrote: I don't use VB, but I can tell you this. You should be able to get $1.50+ if that bid/ask is correct. You can try some limit orders to see, unless you want to hold longer.
I might hold for another month, hopefully the share price stays where it is, and that'll still be enough time on the option to sell at a good price.
Deal Fanatic
Jun 27, 2007
5507 posts
1955 upvotes
what you experienced is called volatility collapse. further, if your call remains deep ITM, it will trade *like* stock (and lose premium). Next time, don't buy ATM or OTM.
Last price is what option traded last. Interesting how VB doesn't show $1.3 even though 5 contracts traded. Pay attention to that IV in the first screen - the higher the IV, the more premium you pay (eg expensive).

edit: I rarely trade options with such huge spread. 1.45 - 1.6 for $13 underlying... not liquid. Take a look at TWTR or APPL.
Member
Feb 8, 2010
326 posts
35 upvotes
Toronto
Many brokerage firms update options prices daily on your portfolio screen, and you need to go to the actual quote screen to get a real-time options quote. I'm assuming this is the case with VB but I don't know as I'm not with them.
Deal Addict
Jun 11, 2005
2759 posts
394 upvotes
How long ago did you buy an option? The vol collapse Dlhunter mentioned may have been due to something like an earnings release or it may also be time decay.
[OP]
Deal Addict
Jan 2, 2013
1473 posts
302 upvotes
Oakville
mudd_stuffin wrote: How long ago did you buy an option? The vol collapse Dlhunter mentioned may have been due to something like an earnings release or it may also be time decay.
Over a month ago.
Deal Fanatic
Jun 27, 2007
5507 posts
1955 upvotes
mudd_stuffin wrote: How long ago did you buy an option? The vol collapse Dlhunter mentioned may have been due to something like an earnings release or it may also be time decay.
time decay is applicable CLOSE to option expiration. Usually, this means 0-50 days left... since this is Oct 2015 call, most of the lost premium can be attributed to VEGA.
Deal Addict
User avatar
Jan 23, 2011
1010 posts
1108 upvotes
Most brokerages use outdated option prices to value the options held in a client's portfolio. Pretend you are entering a trade for this option to get the real updated price.
[OP]
Deal Addict
Jan 2, 2013
1473 posts
302 upvotes
Oakville
Gingercookie wrote: Most brokerages use outdated option prices to value the options held in a client's portfolio. Pretend you are entering a trade for this option to get the real updated price.
I figured as much.. That's what I've been doing. It's just a hassle to sign in (twice for VB), type in the ticker code, then sort through all the options to select the relevant option chain.
But as of today, it was showing +35$ profit instead of the -15$ yesterday. Looks like they update it at the end of the previous business day.

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