Friday Q&A

Hello Smart Option Sellers! With the market having a pretty nasty sell-off today, it looks like most of you had no problem getting filled on today's new trades on GSK & MRK. I'll go over the official results on Monday. Friday Q&A Q: Options with no volume...Example: SJI 04/20/2018 22.50 P the chain screen shows Last trade (0), Change (0), Bid (0), Midpoint 0.33, Ask 0.65, Volume (0), open int (0), the question is there a rule of thumb for a good starting price to sell this PUT at. Should I start at 0.33 or start at a higher price and move down. I use Schwab StreetSmart Edge as my trading platform. A: I took a look at this option chain and it appears it is a very thinly traded contract. You can tell by the extremely wide bid/ask markets (for those options that do indeed have a bid/ask). Some of the others (as you mentioned) don't have much info on them. In order to price these options properly, you really need to have an option calculator handy (you can use this one), and you need to know what the implied volatility skew looks like for each option. The skew is basically the slope of volatility between option strikes. Typically, the lower strikes will have higher volatility numbers while the higher strikes have lower volatility numbers. This can help you gauge what the options should be worth, should you not have much info ahead of time. My book has a whole chapter on volatility and skews. In my opinion, it's probably not worth trading these options because the market-ma