Option Pricing

[tradedatrend]

No matter how liquid scrip is, if it is deep ITM, this problem is bound to occur, even nifty is not immune to it, rs. 15/20/25 spread in deep ITM options of nifty can be seen anyday!

so trading in high liquid stock may reduce the problems with greek ?

 

[tradedatrend]

Sir you have defied all the logic,

option price = underlying value - strike price
thus
450 - 380 = rs. 70 (it should be ideal price, at any given day it can't be rs. 54.85, if stock is trading at 450)

the problem faced by markidharhai arises frequently due to lack of active participation by traders in deep ITMs

bought ADANIENT 380 Call at 15.15. ADANIENT itself was at 373 (Out of the money call, means "Time value is 15.15" )

sold ADANIENT on thursday when it touched 450 ( 380 call was now Deep in the money option)

Break even point = 380 + 15.15 = 395.15

you exit at 51 when the underlying is trade at 450.

X = underlying cmp - breakeven point = 450 -395.15 = 54.85.

May be that time ask rate will be around 55.00,Bid rate will be differ depends on underlying volatility at that time.

 

[stock_market]

If you are unknown of technical and move of the shares it is better to keep away from the option.

 

[tradedatrend]

If you are unknown of technical and move of the shares it is better to keep away from the option.

Keep on discouraging people!

 

[trader_ks]

I think it is just Bid/ask issue. very Deep ITM strikes are always difficult to sell as that particular option will cost a lot and only there will be few traders who will be interested. Since liquidity is less , hence buyer want to buy it in discount.

I manage these type of deep ITMs by selling higher strikes and wait for right buyer or till expiry. It blocks margin for few days and sometime I pay huge STT for my ITM.
Any body else have any other idea to handle deep ITM's?