What does this sentence mean?

[dvalley]

This is greek to me: "Options liquidity is less-than-terrific, so that’s one mark against this stock as spreads become more problematic."

What exactly are they saying here ?

 

[Sunset]

If you are selling/buying options for this stock, it trades slowly, and has large markup/discounts, so you get a bad deal each time.

If you are simply buying/selling the stock, this note about the options has no effect. But check to see the stock amount traded per day.

Use limits for all your buying and selling to avoid unpleasant surprises.

 

[Totoro]

Not many people are trading options on this stock (liquidity). So there are sometimes large differences between asking and selling price (spread).

If you're asking why that is problematic, no idea. Doesn't make sense.

 

[dvalley]

Thanks guys, much appreciated. The symbol is ntnx - I'm thinking about buying a couple of hund shares. I like and use their technology and it's taking a beating now soon after its IPO.

 

[FireBug]

It's also I'm my opinion an example of what permeates our culture. Every line of work has to have it's own language set and verbiage. The idea is to lend legitimacy and importance to the work (not). Now they could have stated exactly what SUNSET said. To paraphrase: If you are selling/buying options for this stock, it trades slowly, and has large markup/discounts, so be careful.

But that, anyone would understand.

 

[exnavynuke]

Thanks guys, much appreciated. The symbol is ntnx - I'm thinking about buying a couple of hund shares. I like and use their technology and it's taking a beating now soon after its IPO.

I went to an investing conference once where I heard such rationale given by many people for why they were investing in many companies. Quite frankly, I consider it one of the worst reasons I've ever heard to buy a company's stock. Lots of people liked and used K-mart, GM, and tons of other companies which still ended up in bankruptcy anyway. "The stores are busy" doesn't mean the bottom line of the company is any good. The product is "good" doesn't mean the company's making money. etc. That's my opinion on that subject anyway.

 

[dvalley]

@exnavynuke - fair enough but I think they're going to do well in their niche market.

Anyway, I put in a limit order this morning, went to lunch and saw the notification that the trade executed. Checked after lunch - looks like I still overpaid where it ended up at the end of the day
I'll buy and hold...they'll go back up. They're outselling a lot of traditional SAN storage technology.

 

[dunkelblau]

Not many people are trading options on this stock (liquidity). So there are sometimes large differences between asking and selling price (spread).

If you're asking why that is problematic, no idea. Doesn't make sense.

I think this comment may be for hedgers, that's the "buy/write" crowd, who purchase shares at the same time as they sell a call option on those shares. A call option is a contract giving its purchaser the right to buy a certain number of shares of a stock from the seller at a specified price within a specified time window (or on a specified date in Europe).

The idea behind this strategy is to give up possible gains beyond the call's strike price within the call's time window in return for the proceeds of the call (and if the shares don't move up you can 'go back to the well' to sell another call once the first one expires). If the stock liquidity is good while the options market has large bid/ask spreads, it's harder to pull off this paired trade on favorable terms. You'll buy the shares at a reliable market price immediately, then you can choose to either wait for your call option to eventually find a buyer (during which time you're unhedged and the price can move against you) or you can price it low enough to "hit the bid" immediately. This dilemma is why the 'option spread is problematic', especially if the stock languishes and you're selling many calls on the shares over time.

 

[Sunset]

@exnavynuke - fair enough but I think they're going to do well in their niche market.

Anyway, I put in a limit order this morning, went to lunch and saw the notification that the trade executed. Checked after lunch - looks like I still overpaid where it ended up at the end of the day
I'll buy and hold...they'll go back up. They're outselling a lot of traditional SAN storage technology.

Hope you sold before today as they dropped 26% to $23.00 which is lower than you bought it.

 

[dvalley]

I haven't yet, they've fluctuated quite a bit since I bought. I'll consider selling after Nov so I don't have to pay ST gains on it.