Why wouldn't an option's last trade price be between the current bid and ask? Asked 7 years, 2 months ago. Active 7 years, 2 months ago. Viewed 2k times. Improve this question. Chris W. Rea Victor Victor It is not a duplicate, kindly consider.
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If the last traded price is between the bid and ask, I understand. How can this happen? Not different. Last trade price is a transaction that happened -- a record of the most recent occurrence of somebody paying the ask or accepting the bid.
Rea Jan 23 '14 at To answer the "which column would I pay" part: If you want to buy, and you use a market order, then you'll pay the ask what it is at the precise time your order gets filled, not necessarily what you saw on your screen. If you enter a lower price, including whatever was coincidentally in the "price" column, then you're creating a new bid , and with a bid, you might not get filled. Read the linked-to question above for more. Add a comment. Active Oldest Votes.
Options are illiquid much like a nanocap equity.
Improve this answer. I'll add that options don't have a monopoly on deriving value from an underlying. And, given the complexity of predicting multiple moving parts, brokers need to know a bit more about a potential investor before awarding them a permission slip to start trading options.
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Brokerage firms screen potential options traders to assess their trading experience, their understanding of the risks and their financial preparedness. These details will be documented in an options trading agreement used to request approval from your prospective broker.
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Investment objectives. This usually includes income, growth, capital preservation or speculation.
Trading experience. Personal financial information. Have on hand your liquid net worth or investments easily sold for cash , annual income, total net worth and employment information. The types of options you want to trade. For instance, calls, puts or spreads. And whether they are covered or naked.
What Are Options & How Do They Work?
The seller or writer of options has an obligation to deliver the underlying stock if the option is exercised. If the writer also owns the underlying stock, the option position is covered. If the option position is left unprotected, it's naked. Based on your answers, the broker typically assigns you an initial trading level based on the level of risk typically 1 to 5, with 1 being the lowest risk and 5 being the highest. This is your key to placing certain types of options trades. Screening should go both ways.
Put Options Function
The broker you choose to trade options with is your most important investing partner. Finding the broker that offers the tools, research, guidance and support you need is especially important for investors who are new to options trading. As a refresher, a call option is a contract that gives you the right, but not the obligation, to buy a stock at a predetermined price called the strike price within a certain time period.
A put option gives you the right, but not the obligation, to sell shares at a stated price before the contract expires. Depending on which direction you expect the underlying stock to move determines what type of options contract to take on:.
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If you think the stock price will move up: buy a call option, sell a put option. If you think the stock price will stay stable: sell a call option or sell a put option. If you think the stock price will go down: buy a put option, sell a call option. If the stock does indeed rise above the strike price, your option is in the money. If the stock drops below the strike price, your option is in the money. Option quotes, technically called an option chain or matrix, contain a range of available strike prices. The price you pay for an option, called the premium, has two components: intrinsic value and time value.
Intrinsic value is the difference between the strike price and the share price, if the stock price is above the strike. Time value is whatever is left, and factors in how volatile the stock is, the time to expiration and interest rates, among other elements. This leads us to the final choice you need to make before buying an options contract.