Option PricesIf your new to the world of options you will want to determine option prices. You can do this by learning to use options tables. Why should you want to know the price for specific options? Because this is how you will find out how much premium you can receive for selling puts or calls. These tables can be found at websites such as Yahoo Finance, Newspapers such as IBD, and of course from your online brokerage such as Options Express. Here is an example option table for Exxon common stock taken from Yahoo Finance: 
This particular table shows the call options available for Exxon that will (or will have) expire(d) on the 3rd Friday of October, 2009. As you now know, options prices can and do fluctuate. The prices you see were valid only for the time in early October when I collected this graphic. Notice also that options for Exxon are available for other months as well, as shown by the links at the top of the table. The rows of the table represent the different strike prices available. The upper rows are colored pale yellow, meaning they are “in-the-money”. The lower rows are left uncolored because they are out-of-the-money. As a conservative option seller, we would be interested in selling options far enough out-of-the-money that they would not be hit. In this example strikes of 75, 80, 85 might be of interest to us. The columns of the table give the strike price, the name or symbol of the option, the last price at which the option was transacted, the current bid and ask, the volume or number of contracts bought and sold on that particular day, and the number of active contacts issued or open interest. The bid price multiplied by 100 gives you the premium you would receive if you sell 1 contract at market. For example, if we owned 100 shares of Exxon and desired to sell an October 70 call against this position (resulting in a covered call), you would receive $107 (minus commissions) as premium into your account. Notice you would receive a lot less for options even further out of the money. Why is that? The reason is because the likelihood that these further out-of-the-money options being hit is less and less. Remember the premium an option seller receives is compensation for the obligation she takes on to deliver underlying shares to the owner at the strike price when she sells the option. Our task as option sellers is to generate enough premium to make the option sale worthwhile to us, but at the same time sell far enough out of the money that the probability of the option expiring worthless is high.
|
