I was just checking some option prices with a view to finding some cheap calls. On the ASX site (see options prices) they have a value known as 'Margin Price', explained as follows:
The theoretical fair value of the option calculated by the Australian Clearing House (ACH) which is used to calculate the value of any margin obligations.
I've comapred two lots of prices, one for BHP, which is a bit volatile, and another for OST, which appears to have lower volatility atm.
I note the OST call ACH values are above the 'market value' (or average of last spread) but the BHP calls are below the ACH value, does volatility account for this? ie OST are cheap because they are below fair value (as calcualted by the ACH). I would assume the ACH would charge more for more volatile stocks/options as it would mean greater risk for their loan.
Eg's from ASX eod today:
Code ExpDate P/C Ex Bid Offer Last Vol OpenInt MarginPrice
BHPKE 30/03/06 C 19.000 8.580 8.580 0.000 20 7.905
BHPKO 30/03/06 C 21.500 6.100 6.100 6.120 51 253 5.420
OST76 29/06/06 C 3.500 0.535 0.535 0.000 205 0.585
OST8T 28/09/06 C 3.750 0.440 0.440 0.000 25 0.480
(I'll try to post some data from intra day trades to check if they are different, I wonder if the ACH price is only updated eod and hence may not change quickly enough to be a good guide in real time).
I'm trying to use the ACH prices as a guide to know when the options are overvalued since some of the free options calculators give values way beyond the market prices. Wayne and others have often mentioned how illiquid the local markets are and how expensive options can be here. My focus is on a more realistic guide, thought the ACH values would be a good reference, does someone know how accurate and fair their valuation model is??
Maybe the concept of an ACH fair value is different to the normal options fair value models we know of???
Any help would be appreciated.