How can I find stocks with highly priced option premiums?

Question

I'm trying to learn some basic arbitrage and I'm reading about tons of different strategies, but it looks as though option premiums are often less than $0.10.

score 4 · Accepted Answer · answered Jun 09 '11 at 18:31

4

Look for options with distant expiration dates and volatile underlying stocks.

answered Jun 09 '11 at 18:31

James

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Fantastic. Are there option charts for various strike prices like stock charts? – Shamoon Jun 09 '11 at 18:33
The NASDAQ website has options charts – James Jun 09 '11 at 19:46
so does yahoo: http://finance.yahoo.com/q/op?s=IBM+Options – Vitalik Jun 09 '11 at 19:52

score 1 · Answer 2 · answered Jun 09 '11 at 20:14

Options are priced pretty close to the Black–Scholes model. The key factors are the current stock price, strike price, time to expiration, the risk-free rate of return, and most important, the stock volatility. I say the volatility is most important as all other variables are pretty static, the thing differentiating two $50 stocks is volatility.

Not knowing your actual goal, I'm not sure what else to offer. As James stated, the premium will rise for options that have longer til expiration.

This is interesting. I posted a related question here: http://money.stackexchange.com/questions/8898/does-the-black-scholes-model-apply-to-american-style-options — Shane, Jun 10 '11 at 12:50

How can I find stocks with highly priced option premiums?

2 Answers2