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Explore Your Options | AUG 2011
Explore Your Options
I’ve noticed some bull call spreads trade for less than intrinsic value prior to expiration. Why is that, since it would seem like a good opportunity to buy at a discount compared to an outright call? What you’re seeing is a function of larger extrinsic or time value in the short, higher strike call compared to the deeper long call. This causes some verticals, in particular those with one strike deep-in-the-money and the other slightly in- or out-of-themoney, appear to be trading at a discount to its intrinsic worth at expiration.
by Tom Gentile
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