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I’m using Robinhood, and I’m new to options trading. A co-worker is teaching me about options trading, and recommended I start with cheaper long term options to learn with since I’ll lose less money with cheaper options if it doesn’t go as planned.

I’ve found that there are call options listed for ticker ACB at a $0.5 strike price. However there is no purchase price listed.

When I go to purchase, I say I want 1 contract at $0.15 which means I’ll spend $15 for the contract. I don’t really see much of a chance to lose from that option since the stock price is currently $2.11 but two years is a long time and anything could happen. As long as it stays above $0.65 I should make a profit (from my understanding since I paid $0.15 per share for the contract).

The problem is, when I submit my order, it fails and said buy orders can’t go that direction.

Why am I not able to buy this call option?

  • It would be helpful to have a bit more details about the trade (long/short, call/put, maturity, underlying, etc). – ApplePie Jan 19 at 20:22
  • Sep 18 Call is all I know. Robinhood isn’t giving me more detail than that. – Emma - PerpetualJ Jan 19 at 20:25
  • What does Sep 18 have to do with anything? You asked about a call with a strike price of 50 cents. based on your mention of 2 years in your question, see my answer in regard to a two year call LEAP with a 50 cent strike. – Bob Baerker Jan 19 at 20:37
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The current price is $2.11 per share, the strike price on the call option is $0.50, and you're placing a bid for the option for $0.15 per share? You'll never get it at that price.

The reason for this is that the option currently has an intrinsic value of $1.61 per share, which means that anyone who holds the option can get an instant profit of $1.61 per share by exercising the option. (For each contract they exercise, they'll pay $50 and receive 100 shares, worth a total of $211, for a profit of $161.) Since the intrinsic value is $1.61 per share, it's certain that nobody will sell it to you for $0.15 a share.

Furthermore, anyone who holds this option has a sort of insurance against the possibility of the price of the stock falling below $0.50. That insurance is also valuable, so the actual value of the option is greater than $1.61 per share.

It's likely that Robinhood is rejecting your order because it knows that there is no chance that the order will be filled.

You mention that you're looking at options that expire on Friday, September 18, 2020. I notice that as of today (Sunday, January 19, 2020), those options aren't even visible on cboe.com or nasdaq.com. This probably means that they haven't started trading yet. Perhaps they will start trading on Tuesday, and Robinhood is showing you the options early. (The stock market is closed tomorrow for Martin Luther King Jr. Day.)

Edit: It's Tuesday, January 21, and these options did indeed start trading today. As of right now, the ask price on the option you wanted to buy is $2.21 per share.

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If ACB is $2.11 and you are looking at a call with a strike price of 50 cents then the intrinsic value of the call is $1.61. There is no way that you can buy a two year LEAP for 15 cents.

I have no clue how Robinhood works but my guess is that they are not displaying closing quotes. The closing quote for the 1/21/22 $0.50 call was $1.57 x $1.92. That means that if the quote isn't stale, you'd have to pay $1.92 for this call if you bought at the market.

I'll spare you a long rant about learning options from a co-worker. It's a very bad plan. It's even worse when you don't understand option basics. If you want even a chance at succeeding with options, read "Options as a Strategic Investment" by Lawrence G. McMillan. Then read it again. Until you have some option financial literacy, you're going to regularly throw your money away.

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