Options Pricing Leads Stock Price

Topic: Options lead stocks? Dorfman says so / Getting the opening price for your option trade

Dear Options Trading FAQ:

Re yesterday’s post: So stock traders sometimes look to options for cues? I thought it was only the other way around! (this might make another good question for your column)

Being the suspicious type of options trader --well, let's say "interested in the *magic* of options", I see this and wonder if some kind of manipulation is going on...

Getting Jaded

Dear Jaded Options Trader:

Welcome to the world of Dan Dorfman! If you watch him regularly, you know that his “sources” often tip him as to “interesting” option prices leading the stock prices. **** Option Trader Name Withheld**** also is on the leading edge of this kind of work. His daily screens point to situations where unusual option prices or volume indicate probable jumps in the underlying stock price.

The theory goes like this: High Option Volume - premise is that smart money moves first in the option market. Overpriced Options - where the option contracts are highly overvalued by traditional modeling. A jump in implied volatility for the options may indicate a coming sharp, sudden change in the stock. Non-Validation Signal - generated when a stock’s options do not confirm the move in the stock. We would believe the options over the stock. The subject is complex. I’ll elaborate in future questions.

Dear Options Trading FAQ:

Yesterday you wrote about an option’s opening rotation. I sent for information from the CBOE options exchange on it but let me ask you this: When do I have to get my order in to my broker to be entitled to the opening price?

Early Bird Gets the Worm

Dear Worm Enthusiast:

It depends on how busy things are on the floor. On a normal day, 10 - 15 minutes before the NYSE opening should be fine. Some days (in very volatile market periods) the CBOE floor will call “upstairs” to tell us that opening rotation option orders must be in to them by a certain time (like 1/2 an hour before the New York opening bell).

Good luck and trade well! Remember, an educated options trader is the best options trader. Browse these books books on trading options.

Tags: Options Trading, Options Broker, Options Order, Options Pricing, Options Valuation

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