Option Prices -Aug 9

I’ve had a handful of inquiries related to options so I figured that I’d use some down time to dust off my option pricing model and give the topic some attention.

The table below shows my quotes on the four electronically traded regions.  Recall that options on other regions can only be “pit-traded” (that is, arranged off-market via brokers).  I’m showing the November cycle of expirations (plus Q17 for CHI where there is open interest), bids and asks on the futures, and strikes that are (mostly) discounts versus mid-market levels.  (The “%/ Strike” column shows the discount of the mid-market on the futures versus the strike).

Much like futures a few years ago, closing prices on some expirations have tended to gravitate from values where I think the next trade might occur. (e.g. LAXX17 250 puts are marked at 12.4, but I’ve posted a 4.0/8.0 market.)  One hope in pursuing this exercise is to bring closing prices within any posted bid/ask spreads.  I hope to use any such feedback to tighten bid/ask spreads or to show more than 1×1 markets.

Off course, my primary hope is that posting these bids and offers will prompt some discussion of what prices these options should be quoted, and to provide some indication for those looking to buy or sell puts.

Optinos_Aug9

Recall that the CME also posts (electronically) quotes for calls so this exercise could be turned around if someone is interested in that market.

I’ve not shown (but it would be easy to do so for the next iteration) how put premiums could be converted into % vs. strikes (or spot levels).  For example, the 8.0 offer on the LAXX17 250 puts can be  thought of as 3.07% of the strike level (=8.0/260) or 3.56% of the spot index.

As with all options, shorter the time to expiration, or further the strike is below the market, the lower the premium (others things remaining the same).

Also, as with other options (and CS futures) combination strategies are possible (e.g. bear spreads, strangles, etc.).

Please feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to discuss.