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Thompson Creek Metals Company Inc. Message Board

  • retaoba retaoba Jun 7, 2013 1:06 PM Flag

    Anyone have any idea why the spread is so large on the January 2015 $2 LEAPS?

    Bid is $1.65, which seems about right. Ask is $2.40 though, which looks to way out of line compared the current PPS. All other calls seem to be in a fairly tight (and correct) margin.
    Volume is, and has been mostly non existent for much of the week including today.

    Sentiment: Strong Buy

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    • dragon_legal_department dragon_legal_department Jun 12, 2013 11:24 AM Flag

      Sp Large?!?
      Today the ask is $5 on the 2015 $2's !!!

      Don't think it will be long before we start to move.
      Less than 3 weeks left in Q-2 now.....

      Sentiment: Strong Buy

    • simple solution----if you choose to buy the 2015 2 calls and say pay 10-15 cents premium (Current underlying price 3.53 less strike 2.00 would put the price---excluding ANY time premium----@ 1.53---which you won't get a fill on---add in a slight premium, say 15 cents rounded up---roughly 1.70 each would be a fair price with shares trading @ 3.53. I f you get a fill at this price----sell an equal number of 2015 puts to offset and maybe even completely subsume the time premium you paid on the calls ; )

    • Yes I do. The reason the spread is large is because the market makers have to buy stock/ sell stock whenever someone buys deep in the money calls/ puts and, therefore, they have to take more risk---so they are trying to build in a "cushion" so to speak.

      Always remember this about deep-in-the-money calls and puts-----premium plus price paid relative to the underlying at that time.

    • The seller just wants their time premium that is all. Those are January 2015 options - That is 19 months til expiration. Where do you think the stock will be in 19 months? All options have intrinsic value and a time premium. The time premium decays over time but can increase or decrease without a change in the stock price due to changes in the volatility premium of the individual equity or market (high Beta stocks, the ones that change in price a lot, have higher option premiums usually). You are paying a premium for the 19 months that you will be able to buy this stock at the contracted price of $2. You should know what you are willing to pay for that time premium, what it is worth to you, and make your offer price accordingly. You can use an option pricing model like the black-scholes to price what you should pay based on your own personal assumptions it if you like. There is currently a seller at 2.40 but the next willing seller may expect more time premium and want way more than 2.40 for the options they are selling. That is what makes a market. What people want and what people are willing to pay. I have paid an average of .80 for my January 2015 calls and .40 for my January 2014 calls so far but those have a strike of 5 and are much further out of the money than the 2's. The 2's are much less speculative.

      Sentiment: Strong Buy

      • 2 Replies to molyvestor
      • Moly you do realize that the stock will need to get above $5.80 before your January 15 calls are in the money. By contrast, even at the current ask, the 2's are in the money at $4.41. That's a huge difference. Quite frankly, I'm surprised the ask price isn't higher. I own about 10% of the outstanding January 2's at an average price of $1.46. I wish I had bought more. I frankly view these option prices as a gift.

      • I have a number of Jan 2015 and 2014 $5 contracts....and I completely agree with your excellent response, as I'm sure retaoba does too. But I have to agree with retoaba that the spread on this particular contract seems very high. Admittedly, they are in the money. And admittedly, the time value premium will vary quite a bit week to week this far out. I have some of the 2015 $2s at $1.45 and would love to buy more, but I'm not paying up $2.40, or even to the current mark of about $2. I'd just buy the common instead. I might consider $1.75 or so, for the increased leverage, but right now the spread is too rich for me also. I can option 10000 shares for the price of 5000 shares of common at $1.75. To me, that seems like pretty much a no brainer in this particular instance.
        The spreads do seem much more inline on all the other contracts, as retaoba mentioned. Just this one is wide.
        You may be correct, it may just be a large block for sale at $2.4. and everyone else has fallen in line, but that number is way off what the contracts have been trading for recently. (That's why you ALWAYS use limits on options, because the market can move FAST and traders can and do take advantage of that).

        Sentiment: Strong Buy