Why are Valero options trading higher today as the stock is trading down? What are the basics I am missing?

Answer 1

The first two answers gave you reasons that the situation could occur, but they do not apply in this case. The call options are trading lower today, not higher.

If you are seeing quotes that indicate the call options are trading higher, you a probably using a bad source for your option quotes, quite likely Yahoo. It looks to me like Yahoo is still giving yesterday's data for options when you ask for a quote today.

I suggest you use an alternate source for options quotes, such as

http://www.cboe.com/DelayedQuote/QuoteTable.aspx

Answer 2

Option prices fluctuate for a few different reasons, and only 1 is the stock price. Another factor is Implied Volatility, which is the specialist's tool for balancing supply and demand. There is a very specific reason for this, which is that if there are high expectations for a move in a stock, that might increase demand for the options, and the specialist will need to raise premiums in order to invite more sellers into the market. Because options are priced according to the Black-Scholes Model, the one variable the specialist has is to increase Implied Volatility.

Just as the Greek Delta is a guide to how much an option can move with the stock price, the Greek Vega tells you approximately how much the price will move with a change in IV. If there is excessive demand, and IV rises, it is possible that that this rise could counter the stock price's impact on the premium. So if you had a delta of .2 (meaning that the option will move $.2 for every 1 point move in the stock), and a Vega of .2 (meaning that the option will move $.2 for every 1% change in IV) and the stock was down 1 point, but IV up 2%, then the option will be up $.2. The flip side, what you might be seeing when calls are up when the stock is down, is that IV has increased enough to push the calls up.

This is one of the least understood, but obviously quite important (especially on LEAPS on high-priced stocks, where Vegas can be as high 2) aspects of option pricing.

www.ez-traders.com

Answer 3

Sometimes (for no apparent reason) the listed price of an option moves out of line with the bid/ask prices for the option (the true price at which you buy and sell securities) and then corrects itself a day later. That can cause an option to appear to go up on a down day. Really though, just look at the bid and ask prices--they're what you're really paying/getting for the option.

Answer 4

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Answer 5

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