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  • bluebloodedtrader bluebloodedtrader Jan 27, 2013 9:35 AM Flag

    put options are getting expensive

    the feb 260 put is $410 a contract versus the 310 call at $325 per contract ( both options are out of the money by about $25...if you go way out of th emoney the disparity widens...$70 out of the money, the put premium is 5 times higher than the call premium... the bid on the Feb 355 call is $5 per contract while the bid on the Feb $215 put is $35 per contract.

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    • $250 put is $34 away while $310 call is $26 away, so just based on dollar basis the put is $2 closer. However an equal difference form stock price always makes the puts a larger percent differential than the call, therefore puts will carry a bit more premium. As you get closer to earnings you might see the value of the same strike actually rise. Option sellers make money no matter what, except if your options call was correct by the differential and premium and direction.

      For example if you buy the $300 calls exp this week for $6, you will only make money if the stock goes to $306 plus by the time options expire. If stock goes down, stays unchanged or even goes up but not over $306, you lose money. So as you can see, you can be right that Amazon will rise and if Amazon only rises $15 which is significant by itself, you still lose money.

      This is why playing options before earnings is very risky, even if you call the direction correct. Almost all premium will be sucked out of options the day after earnings. AMZN seems to be carrying a 7-8% implied volatility which is very high.

    • what does it mean ?

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