Total Newbie Question

cjl said: "SI: I am just learning about option trading. I have read through the articles on 888options, and I think I am starting to understand the basics. I would like to start playing around on paper for a few months before investing. For fun, I am in the process of writing some software that analyzes all optionable equities at the end of each day for profitable covered calls. I do this by 'screen scraping' the data from Yahoo, MSN Money, and other sources. I then store this data in a database, which can be queried in different ways. I ran this software for the first time today against the CBOE symbol directory, and got some numbers I didn't understand. For example: Altria: [url]http://finance.yahoo.com/q/op?s=MO[/url] CVS: [url]http://finance.yahoo.com/q/op?s=CVS[/url] The option premiums seem strange. Why are the CVS 45, 50, and 55 strike May call prices this high? Whay are the Altria 65, 70, 75, and 80 strike May calls so high? Does the dividend and ex-dividend date have something to do with it? Thanks in advance for any help on this, CJL"

drdan said: "CVS is pretty simple it is about volatility see thread here - [url]http://www.superiorinvestor.net/thread5342.html[/url] CVS earnings are coming on Tuesday or at least a conference call is so volatility is up in comparison to the three month average causing the option prices to be higher. Altria is a little more complicated but it has to do with the Kraft food spinoff. The MOZ options are 100 shares altria, 69 shares kraft and some cash and therefore they cost more. You are looking at Altria at 60 something, Kraft at 30 something and some cash, so the options reflect that price difference. You are looking at a strike of $65 for a contract that is already worth over $90 so the option is going to be $27.50 or there abouts. Make sense."

cjl said: "DrDan: Thank you for your reply. Your explanation of Altria option prices made sense, but I am still confused about CVS. When I look at the end of day data from May 4, I see: [url]http://finance.yahoo.com/q/op?s=CVS[/url] Here are my assumptions: The stock closed at 35.94. The bid on the 35 May call is 1.35. If the stock price does not change (or goes higher) between now and May 18th, a covered call would return approximately 1.1%. The return is high because an earnings report is coming out soon (before the May options expire), and barring inside information, the contents of that report is unknown. Some people think earnings will be good, some think it will be bad, and the speculation has increased volatility, which increases option premiums. So why is the bid on the 42.50 call only .05, and the bid on the 45 call is 19.70? There seems to be abnormal prices for the 45, 50, 55, and 60 options. Thanks again, and I apologize for my ignorant questions, but this is the highest 'signal-to-noise' forum on this topic that I could find. -CJL"

drdan said: "OK that is the same as what happened to Altria. CVS must have split at sometime or some other thing to allow a share holder to have an additional 67 shares per 100 so the options have to change, either by price change or they add stock to the contract like they have done here. Those are adjusted options instead of being worth 100 contract shares those are worth 167 contract shares seen here - [url]http://moneycentral.msn.com/detail/market_quote?symbol=.CLZEI[/url] Just like the MOZ's they are adjusted for 100 shares of MO, 69 shares of KFT and some money, the CVS contracts are worth 167 shares instead of 100. Oh by the way do not worry about asking anything you do not understand. It is only ignorant not to ask before trying to trade."

cjl said: "drdan: Thank you. You correctly pointed out that the seemingly strange option prices were due to contracts containing more (or different) shares than I assumed. Unfortunately, using my 'screen scraping' method of getting end up day quotes for all optionable equities, this information is not readily available. I am looking into other sources of end-of-day and historical data. So far I have found: [url]http://www.naq.com/corpservices/eodservice.asp[/url] [url]http://www.stricknet.com/main/data.htm[/url] [url]http://www.historicaloptiondata.com/purchasing.aspx[/url] Any other ideas on where this data might be available? Thanks again, CJL"

drdan said: "[QUOTE=cjl]So far I have found: [url]http://www.naq.com/corpservices/eodservice.asp[/url] [url]http://www.stricknet.com/main/data.htm[/url] [url]http://www.historicaloptiondata.com/purchasing.aspx[/url] Any other ideas on where this data might be available? Thanks again, CJL[/QUOTE] Have you tried going to one of the sources? How about [url]http://www.cboe.com[/url]"

TippingMonkey said: "Hi CJL, I like Covered Call strategies and I think it's a very good starting point for relative beginners. The fact that you need to own the underlying stock means it requires more capital, which is bad for sepculators and good for serious beginners because it makes you think harder before you commit the capital into the trade. I like spreads a lot and I use them in practice, but I think covered calls is a good vehicle to start with. That said, the credit spread is a safer bet once you gain the experience because it has built-in downside limit, but it is easier for beginners to over-commit capital into the trade and lose their shirt (you can lose a lot more than you think). My site is dedicated to Covered-call-based strategies that you might be interested. It actually does the exact same thing as you are thinking about and screens for profitable trades at the end of the day. If you are interested in sharing some ideas perhaps we can get together and refine our algorithms. My system also screens "collar trades" (Covered Call + long put) for further hedging that simulates a credit spread. Come check it out and see if you like what you see! Oh, the site also has one of the best free trading simulators around where you can build combination plays with long and short positions. I believe our system is the only free simulator that tracks option assignment costs against option writes. This way you won't have to track your complex options trades on paper! Hope this helps!"

thezster said: "Another F'in spammer promoting his own web site here cause he can't get enough traffic on his own......"

holzie said: "[QUOTE=thezster]Another F'in spammer promoting his own web site here cause he can't get enough traffic on his own......[/QUOTE] Lol, at least he posted more than 1 line :)"