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I'm new to options and I was on the robinhood options chain for selling VSAT puts with expiration data AUG 17 and noticed that the stock was trading at $63.79 with premiums $0.08 and $2.40 for respective strikes of $60 and $50/$40.

I am wondering why this is the case? Wouldn't a writer prefer the $40 strike with premium $2.30 to the strike of $60 with premium $0.08?

  • Don't mistake the last trade price with the bid & ask. – Chris W. Rea Aug 15 '18 at 1:42
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    So many of the "explain market prices" questions on this site are explained because, folks simply don't understand that there is no "price", there is only a history and maybe some bid/asks. With incredibly liquid everyday stocks, it is easy to be fooled in to thinking there is "a price" of a stock. Almost all of the questions on here about options, unusual trades, simulations, miracle schemes for making money on the markets etc etc, can be resolved by the OP learning about thin markets! – Fattie Aug 15 '18 at 2:49
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    Fattie, you shouldn't be talking about "thin" markets. But you deserve a +1 anyway :->) – Bob Baerker Aug 15 '18 at 3:07
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Helpful first post suggestions: When you describe an option position, you need to specify all of the details. In this case, are these puts or calls? Are you quoting the bid, the ask or the last trade? The details are apparent when I look at an option chain but the reader shouldn't have to look up the quotes.

Now, some answers. These are illiquid options. The $40 put has an Open Interest (OI) of zero. That means that there are no contracts in existence. This illiquidity is also reflected by a closing bid of $0.00, a closing ask of $4.80 and a last trade of $2.40 which occurred who knows how long ago and at what price of VSAT? Although the ask price and last trade are slightly different for the $45 and $50 put, it's the same zero OI. There's no valid basis for comparison for any of these options.

Another tip off that this is bad data is that the last trade in all three of these strike prices ($40, $45, and $50) was $2.30 to $2.40 and yet the $60 put is $0.05 x $0.10 with a last trade of $0.10. The further out-of-the-money options are, the less they are worth. And yet the $40, $45 and $50 puts are worth 23 times the $60 put, based on the last trade? All of these puts are near worthless and this is just garbage quote time.

  • Thanks for the response. So I guess the data is bad or meaningless and I wasn't reading the relevant information. Also, many of the factors you mention don't show up on the robinhood chains, so I may ask another question about alternatives. – Ceeerson Aug 16 '18 at 2:05
  • I have no clue what RH provides but a decent trading platform gives you all of this information - and more - in their option chains. The Optionistics web site ( optionistics.com/quotes/stock-option-chains ) is good for looking at option chains after the close. It also offers display of the option Greeks which might be above your current pay grade (?) . Real time platform quotes are obviously more accurate than free web sites. – Bob Baerker Aug 16 '18 at 3:45
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OP,

  1. The prices (both history, and current bid/ask) you are seeing are literally totally meaningless.

  2. The fundamental issue is, it looks like you have not yet got the idea that "prices" are, quite simply, meaningless in very thin markets.

The important point to understand is that, because we often talk about "the price" of common everyday stocks (Coke, Apple, etc) ...

  • with those instruments, there is an incredibly high trading volume measured literally in as much as millions of trades per hour (!!), and at every second (!) of the day there are tens of thousands of bids/asks sitting,

  • this gives folks a completely distorted view that instruments "have" a price

  • once you trade thin instruments, you will be quickly disabused of this notion :)

As in the example at hand.

The "myth of price."

The "myth of price" is caused by our day-to-day familiarity with incredibly liquid instruments (the common well-known stocks of our day). It is completely common to talk about "the price" of Apple, etc. This is simply as wrong as it is common. Once you trade thin instruments, you will be quickly disabused of the "myth of price".

An analogy which can help is, consider a house for sale on your street. When you think of a "single item" like that it's more obvious that there is no "price". It could be nobody whatsoever is making an offer on it, it could be it just sold a few days ago, or it may not have sold for 20 years, or there may be a dozen offers on it.

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