3

When I look at options chains, there are no options for strike price $0. Not even for low-priced stocks. Not even for stocks of bankrupt companies that still have unexpired options. Why is $0 omitted?

  • What country or exchange are you looking at? – Morrison Chang Aug 28 at 6:41
  • @MorrisonChang The USA. – user102086 Aug 28 at 6:42
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Layman explanation...

Put option with strike price $0 would give holder right to sell stock for $0 no matter what is the stock price (put option is not exercisable if you don't own stock). Owning such put option in normal world would be punishment as stock prices don't go below $0 and at exercise you would be giving away stock for free. So such put option would always trade for $0.

Call option with strike price $0 for writer would make responsibility to sell stock to option holder for full price when assigned no matter what is the stock price. This call option would act the same as stock and I believe premiums would mirror stock price no matter what is expiration for call option.

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  • Although I suppose that with the "oil prices are negative" stuff, a $0 put option would have been valuable. – Acccumulation Aug 29 at 20:14
  • @Acccumulation The question was around stocks and for stocks I find it very unlikely that stock prices could ever go into negative territory, because 1) shareholders are protected by bankruptcy laws that set the floor to $0 AND 2) it is easy to handle stock oversupply (no warehouse needed). If stock prices could go into negative like oil then yes put option with $0 strike price could have value. But then again, that is the reason I made "in normal world" disclaimer. – user389238 Aug 30 at 20:47
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As user389238 says, a zero-strike put is worthless, so that part is easy.

And a zero-strike American call is very similar to the stock itself (because it can be exchanged for the stock). The one difference is that the call doesn't pay a dividend when the stock does, but the call does drop in value like the stock does when going ex-dividend. So no one would hold the call across a dividend -- its open interest would disappear and then reappear after. (This already happens with low nonzero call strikes during dividends.)

On the other hand, a zero-strike European call would be pre-discounted for all dividends to be paid by expiration; it would be more like a future.

Bottom line, zero-strike calls would be similar to existing instruments and lack the distinctive "optionality" (dependence on implied volatility) that motivates options as an asset class.

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Because there is no market for it. Nobody wants to pay a commission for getting a worthless stock, neither for selling it.
Same reason why there is no market for used toilet paper — nobody would want to buy it.

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  • This is true for a zero-strike put, but not for a zero-strike call. The latter has actual value. Remember, the strike is not generally the same as the market price of the stock. – nanoman Aug 29 at 0:26

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