Quick question - how exactly does one go about buying options for $0.02? For example, on Etrade the May options on PPHM @ K=$2.00 show last price as 2 cents at a volume of 5 contracts, whereas I normally they go in 5 cent increments.
I appreciate your time in answering my question, thanks in advance.
There are ways to do it as part of an advanced order using buy/write orders. However, in the case of PPHM, this occurs on a monthly basis and it's normally done using a small amount of contracts. It's most likely a market maker trying to create margin calls so small retail guys have to sell out for a loss. For example, the May $2 strike had 5 contracts go for .02 but there are 400 open contracts. Assuming most were bought around .05-.10, the owners just took a 60-80% haircut because of a trade that would cost about fifty bucks to make. All games.
There was NO bid for the $2 contracts so most likely some amatuer trader placed a market not limit order to sell and the MM scooped them up for $0.02. One things 4SURE NO way NO how did any 5 contract option transaction create ANY kind of margin call and to even think that clearly shows no idea about options. 5 contracts is equal to 500 shares $700 total hardly creates any type of a margin call not to mention options can not be purchased on margin without cash or stock to offset cost.