hi everyone, have a question and just exploring the idea of long calls now, so excuse me if this is super basic.
I was looking at some options for companies. I’m feeling bullish on in the long term, but seeing sort of strange pricing and vastly different IV for contracts that seem close together or similar, and other than big differences in open interest I’m not sure what the upside and downsides are.
In the attached SNAP example, it seems odd that the $3 contract spikes so aggressively in IV, there is 10x as much open interest vs the $4 call, is that the only reason IV is so drastically different?
let me know if I’m even making sense, all help is appreciated 🙂
https://i.redd.it/0ss6xg6kvomd1.jpeg
Posted by furikakke
3 Comments
Zero volume
When I first started, I made a large portion of my profits from taking advantage of price misalignment. Meaning, if the other contracts in the chain were 2.00 and I found an 0.80 or lower in the middle, I would try to capture that contract. Sometimes, the bought contract actually adjusts to the rest of the chain. Results not guaranteed, but it’s possible with due diligence.
Robinhood (and most brokers) show the mid price between the bid and ask. But for options, which are often illiquid, the spread can be wide.
For example, maybe the $2 and $4 call/ have tight spreads, but the $3 is very loose on the ask. The mid for the $3 is therefore higher than the mids for the $2 and $4. But the *bids* might be all in line with one another. If you’re seeing then and thinking “shit I’ll buy the $2 and sell the $3 and collect the arbitrage” you have to look at the *bid* for the $3 versus the *ask* for the $4.