I agree that pricing on AAPL was being manipulated all day Monday and Tuesday. The groundwork was laid in the sessions leading into earnings. Today's rally notwithstanding, "someone" was putting in a lot of effort to keep AAPL at 199.99 knowing they were paying for a lot of windfall calls. The local response to this is to plan ahead and use this experience to buy into the trade (whether you think Apple will have a great month or two through the gift-giving season or not) and avoid paying the premium and then selling into the discount. Of course, easier said than done.
On Wed, Oct 21, 2009 at 5:41 AM, rvd <rvdidit@yahoo.com > wrote:
Noel,
Do you know that there are many at companies like GS or Citadel, etc. that are looking for undervalued/overvalued options all the time. So as soon as they find one, they trade to take advantage of the arbitrage opportunity.
So you will have to move with lightning speed to compete with them.
How are you calculating the fair price?
RossNoel,------------
Theoretical price is derived from an options pricing formula such as the
Black-Scholes formula. The reason you saw such a swing in the price of
those options is because the option premiums had inflated due to the
uncertainty surrounding AAPL's impending earnings release. This
represented an increase in implie volatility. Once earnings were
released, the uncertainty was removed and implied volatility fell. This
phenomenon has been described as an IV collapse.
The reality is that there was no deviation from the theoretical price
and the actual price. It's just that at that particular moment the IV
figure being used to calculate theoretical price was no longer in step
with the market.
Christopher Smith
TheOptionClub.com
--- In OptionClub@yahoogroups.com , "NoelC" <a0022417@...> wrote:
>
> Did anyone think it was strange that Between yesterday and today and
now,, the AAPL Call and most put Options were over 100% less than their
theoretical value, Someone explain please
>
> I had one that theoretically it should have been $3.90 and it hit a
high of 1.60 for a split second at the opening and has been totally
wrong ever since and after looking at all of the NOV chain its all wrong
>
> What the Hell!
>
> Noel
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