The Black-Scholes formula is probably the most popular model used to determine stock option value. Option prices tend to stay near this theoretical value but on occassion the prices move off this mark. Do traders that buy theoretically underpriced options gain an advantage?

Monitored Stocks
Lumikan.com monitors a selected list of stocks. This list is comprised of stocks meant to represent most levels of volatilty you will see in the market.

Covered Calls
To sell a covered call the trader needs to own enough of the underlying stock to back up the option. These postions are created by buying 100 shares of stock for each call that is sold.
This is considered a very conservative strategy. Because the trader knows their entry price (today's price) and their exit price (the option strike price) it is possible to calculate an expected APR. There is an added plus that deep in-the-money calls include automatic hedging. The drawback comes from the risk that the stock may fall more than the hedge and cause the position to lose money.

Undervalued Calls
A call gives the buyer the right to buy a stock at a specific price called the strike price. The higher the stock goes above the strike price the more valuable the call becomes.

Undervalued Puts
A put gives the buyer the right to sell a stock at a specific price called the strike price. The lower the stock goes below the strike price the more valuable the put becomes.

Undervalued Straddles
Created by buying both a put and a call at the same strike price. If the stock goes up the call will increase in value but the put will lose value. If the stock goes down, the put increases but the call decreases. The goal is to buy a straddle on a stock that moves either up or down far enough to pay for the losing option and still make additional profit.

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Send email to Orion at orion@lumikan.com
Neither Orion Amos nor Lumikan.com recommends the purchase of any particular security. All option contracts (including undervalued ones) can and will go down in value.
Price data is updated once a day.