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- 12 January 2009
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Hi,
I recently decided to take my first step into the short side of trading, by buying 5 put-option contracts on the XJO @ 4850, expiring on Feb 18, (XJOZI8), as a hedge against falls in my long share portfolio. I am using NAB Online Trading, but hope to switch to Interactive Brokers soon. When I bought the 5 contracts, their premium was listed as 80, and they cost me $800 each ($10 per point).
Now that the XJO has dropped, I would have thought that these options would be In The Money, and I was expecting to see the market value of them increase to
$10 per point x 5 contracts x (4850 - XJO)
However, NAB Online Trading is listing their market value as 162 per contract and a total dollar value of only $81.00.
I expect that if I exercise the options on expiry and the XJO is still as low as it is now, I will get a lot more money back than $81.00, right?
So why is the listed dollar value so low? Is it because the market thinks that there is virutally no chance that the XJO will stay this low until Feb 18? I tried clicking "Sell" and clicking "Preview" (without actually confirming the order), which gave the same dollar value as I was seeing in the Portfolio view.
Am I completely misunderstanding selling of options? I thought that I would be able to sell the right to exercise the option to another investor/trader, and that the option writer would then be obligated to make the transaction with the person I was selling the contract(s) to, instead of me, if they exercise the option.
Thanks in advance,
James
I recently decided to take my first step into the short side of trading, by buying 5 put-option contracts on the XJO @ 4850, expiring on Feb 18, (XJOZI8), as a hedge against falls in my long share portfolio. I am using NAB Online Trading, but hope to switch to Interactive Brokers soon. When I bought the 5 contracts, their premium was listed as 80, and they cost me $800 each ($10 per point).
Now that the XJO has dropped, I would have thought that these options would be In The Money, and I was expecting to see the market value of them increase to
$10 per point x 5 contracts x (4850 - XJO)
However, NAB Online Trading is listing their market value as 162 per contract and a total dollar value of only $81.00.
I expect that if I exercise the options on expiry and the XJO is still as low as it is now, I will get a lot more money back than $81.00, right?
So why is the listed dollar value so low? Is it because the market thinks that there is virutally no chance that the XJO will stay this low until Feb 18? I tried clicking "Sell" and clicking "Preview" (without actually confirming the order), which gave the same dollar value as I was seeing in the Portfolio view.
Am I completely misunderstanding selling of options? I thought that I would be able to sell the right to exercise the option to another investor/trader, and that the option writer would then be obligated to make the transaction with the person I was selling the contract(s) to, instead of me, if they exercise the option.
Thanks in advance,
James