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I saw a stock increase about 1.5% this week, but its June 2019 in the money option price didn't move. 'Last' has been the same for awhile, but I thought bid/ask (what my broker uses to decide the price of the option on their interface) would move anyway. What's going on?

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If there's no change in implied volatility, tt doesn't make sense that a stock increases 1.5% and the in-the-money call doesn't move at all.

This situation would be possible if you are looking at closing or last trade prices (stale quotes). For example, the option last traded at 3 PM and the stock is higher at 3:10 PM so you're not seeing an accurate comparison.

It would also be possible where the IV is low and the bid/ask spread of the option is wide with the previous option trade at the ask and the subsequent trrade after the up move in the underlying taking place at the bid.

And once in awhile, it's just bad data which tends to happen on web sites (Yahoo Finance is notorious for this) as well as on lower level trading platforms.

If the quotes are accurate then you're seeing a confluence of one of more factors: wide B/A spread, low implied volatility, or a decrease of IV from a higher level.

Check to see if there was any major news, particularly an earning announcement because after that occurs, IV contracts.

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First, to be clear, the broker doesn't decide the option price; it reports the bid/ask from the exchange(s). You are right that the bid/ask should reflect current market value, even though the last price may be out of date (and remain the same for a while) if the option rarely trades.

If you are sure you compared the option and the stock over the same time period, the behavior you describe is surprising, because 1.5% is a significant move. The option quote was the same to the penny? I wonder if somehow the bid/ask you're seeing is stale too. I would especially suspect this if it was the same not just at two snapshots but at other times in between, and if the quantities for the bid/ask didn't change either.

However, if the bid/ask really was exactly the same at two times, between which the underlying rose 1.5%, the most likely explanation is a change in implied volatility that coincidentally offset the move in the underlying for that particular option (vega vs. delta). For this to be true, the option shouldn't be too far in the money (vega should be significant). Other options in the chain should have changed, though (because they wouldn't have the same ratio of vega and delta).

In principle, time decay (theta) also contributes, but the decay over one week for an in-the-money option with three months left is quite small.

  • Wouldn't bid and ask stay the same if nobody cared to trade the option? With very low volume, it could sit for hours until someone cares. Or do I miss something? – Aganju Mar 17 at 2:26
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    @Aganju The bid/ask only exists because someone, if only a market maker, cares to (or is paid to) place buy and sell orders in the option. The market maker has to adjust the bid/ask because if they don't, somebody else will care. If the option fair value goes enough above the ask, traders looking for any profit opportunity will buy at the "discount" price. Likewise, if the fair value goes far enough below the bid, traders will sell at the "inflated" price. – nanoman Mar 17 at 2:38
  • @Aganju - That might be true for small moves in the underlying that are engulfed by the B/A spread. That's not the case here. Puts and calls are tied to each other through various arbitrage positions (conversions, reversals, etc.) so their value inherently changes as the underlying or the other option changes. As an non arbitrage example, a one month $95 call on a $100 stock is $5.75 (20 vol). The stock rises 1.5% to $101.50 so the intrinsic value is $6.50 which is higher than $5.75. Price has to move up. – Bob Baerker Mar 17 at 2:41
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For options, you see a "last traded" price - the last price the option was sold and bought for. If the option isn't traded, then the "last traded" price isn't going to change. There are usually lots of different options, say if the share price is $13.24, you might have options with a strike price of $10, $12, $15, $20. And different expiry dates, one every three months.

It's quite possible that nobody is interested in trading the $10 options right now. If an option was last traded October 2018, then it will have a "last traded" price that was reasonably in Oct. 2018, not one that is reasonable today.

  • OP made clear that they understood the distinction from the "last" price, and that they were asking about the bid/ask. This answer doesn't address at all why the bid/ask wouldn't move. – nanoman Mar 18 at 1:50

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