Back To Answers
"Why are there more than one option of the same underlying, strike and expiration?"

Question By Farzin

"Why are there more than one option of the same underlying, strike and expiration?"

Could you kindly explain to me why some options with same underlying stock and same expiration date very in price? For example, why does BAC's Jan2010 $5.00 options come with 3 different price listing?

Asked on 24 March 2009

explosive option trading mentor Star Trading System Training Course
Find Out How My Students Make Money Consistently Through Options Trading In The US Market Even During An Economic Downturn!

Answered by Mr. OppiE

Hi Farzin,

Isn't it interesting to see that those $5 call options, which are deep in the money as BAC is trading at $7.22 at this point of time be selling for lesser than its intrinsic value?

If you work the math, you will find that $5 call options should be $2.22 in the money, which means that its price should include $2.22 of intrinsic value, so why is it selling for much much lesser than $2.22?

Those extra options with the same expiration and strike price but weird pricing that you are looking at are Adjusted Options.

Adjusted options are non-standardized options that have been adjusted in value and deliverables due to major corporate events such as merger and acquisitions that changes the capital structure of a company. Big companies like BAC go through mergers and acquisitions all the time. In fact, BAC just acquired MER recently in January. Such acquisitions are usually paid for with shares of the buying company or cash or both. When that happens, the share price of the buying company drops due to outflow of capital assets. Holders of the buying company's shares will now hold shares of both the buying company and the bought company. Holders of options prior to the event would have their options adjusted in value and deliverables in order to reflect that change in capital structure and hence the creation of adjusted options.

Adjusted options DO NOT convert to 100 shares of the underlying stock like regular standardized options do, so there is no way to tell if those options are in the money or out of the money just by looking at their strike price. In fact, you won't even know exactly what those options convert into and how their prices change in accordance to changes in price of the supposed underlying stock.

In fact, if you used the options chain from your options trading broker, you probably won't even see these adjusted options as they are mostly screened off by default in order to avoid confusion.

In conclusion, these options with weird pricing are not mispriced. They are simply based on different things due to changes in capital structure. These are not options you should buy to simply speculate on the underlying stock as these options may not convert totally into shares of the underlying stock in the first place. As an options trader, you should avoid trading these adjusted options. Please read the full tutorial on Adjusted Options.

Response by Farzin...

Reply by Mr. OppiE...

Response by Others...

Continue your journey of discovery...
Click Me For Content Index
Click Above For Content Index

Have a Suggestion?

Options Pricing
Adjusted Options
Options Moneyness
Stock Options
Options Trading

Back To Answers Main | Go To Option Trader's HQ


Important Disclaimer: Options involve risk and are not suitable for all investors. Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither, nor any of its data or content providers shall be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. Data is deemed accurate but is not warranted or guaranteed. and are not a registered broker-dealer and does not endorse or recommend the services of any brokerage company. The brokerage company you select is solely responsible for its services to you. By accessing, viewing, or using this site in any way, you agree to be bound by the above conditions and disclaimers found on this site.

Copyright Warning: All contents and information presented here in are property of and are not to be copied, redistributed or downloaded in any ways unless in accordance with our quoting policy. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. We Take Our Copyright VERY Seriously!

Site Authored by