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The Blackstone Group L.P. Message Board

  • mista_kurtz_he_dead mista_kurtz_he_dead Aug 7, 2013 3:43 PM Flag

    Jan 15 LEAPS

    Don't know if any are interested, but look at the prices of the Jan15 options. Earlier I bought 30 jan15 22 calls for 3.50 and sold the Jan15 22 puts for 3.75. The stock was around 22.80 at the time and the out of the money puts were more expensive than the in the money calls. Am I the only one that thinks this stock will appreciate over the next year?

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    • Good observation. This unusual pricing is also evident in the Jan 15, 20 puts and 25 calls. You may have gained as much as 1.00 over what they should be priced at. The Jan14, 22 puts and 22 calls however appear to be priced correctly. Sometimes this unusual pricing occurs when the volume is very low, as in your case. I am surprised that option pricing software which scans the market did not spot this.

      I am going to close out my shares and replace them with Jan15 calls. I am looking at the Jan15, 17 calls which are priced at 6.45 I like them because they will provide a greater gain than loss for the same amount of share price movement.
      If the share price were to increase by $5, the option would be worth 10.85, a gain of 4.40
      If the share price were to decrease by $5, the option would be worth 3.45, a loss of 3.00

      Sentiment: Buy

      • 1 Reply to tlee22202
      • Personally I'm not a fan of deep in the money options. Although I totally agree with you in increasing the Delta as high as possible, you can do the same more efficiently by buying the J15 22 calls and selling the J15 17 puts. This can be done for a realistic 1.85. The 4.60 that you would save (6.45-1.85) would also give you added protection down to (17-4.60) 12.40.

        Your Delta is about a 0.86. This trade would be a delta of about 0.82. So your gain if BX rallies will be about the same while you would be risking a good deal less.

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