My Hedge Fund: Options Pricing Error Update

November 26th, 2007

After a week of waiting, I got a little angry and decided to sell ALL my options in my Investopedia account. The reason is simple. I STILL LOVE OPTIONS BUT I DON’T LIKE INVESTOPEDIA’s system of pricing options. The basic error is detailed here. There was a bid and there was an ask… but since no volume was traded the value was listed as $0!! It stayed that way for several weeks and made My Hedge Fund have a massive loss (even though there was no loss!).

So I decided to sell all my options as I don’t trust Investopedia not to do this again. I only owned four different option types and I’ve already seen some errors - so there would probably be many more problems in the future. I immediately began selling all my options in a fit of rage, all except the options that were listed as $0… no use selling those for nothing! I sold the options on a down day in a down week… at a bad time really… considering these are long term options.

Guess what? Today I log in to my Investopedia account and the options that were worth $0 are now worth money again.

I think I’ll leave options out of My Hedge Fund for now… not because I don’t like them… I really do and I think by using them I can do way better as they magnify my returns… but I’m going to use stocks because I just don’t trust their options system. Sad day for me…

So, once again my USD account value is back above the initial $100k it started with…but not by much. The value is about $107k for the USD portfolio. Sad, sad day as I sold many good options way too cheap and at a bad time. I planned to hold many of these option chains for 3 or 4 years! They were all long term in-the-money options! Maybe I’ll manually calculate an alternate portfolio value each month if I was able to keep those options and then compare it to investing in the underlying stocks. That might make things more interesting.

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