My Hedge Fund: Options Pricing Error!

November 17th, 2007

I’m starting to get really annoyed. I’m doing so well with My Hedge Fund, that I don’t want anything stupid to mess the results up. The basic problem I’m now encountering is that my Feb 2010 $2.50 call options on NAK (Northern Dynasty Minerals) (NAK BZ) are now listed as worthless in Investopedia’s Simulation, though it clearly shows the bid and ask prices for that exact option are: $9.10 and $9.70 respectively; no volume has been traded for a while.

To add insult to injury, I bought these contracts at $7.70, so I spent $19,250. These, even if sold at the bid price of $9.10, would make the value $22,750, a 18.18% gain. Instead, the value is listed as $0 and it counts as a -100% loss! THERE ARE BIDS in for $9.10, and ask price is $9.70… but since no volume has been traded for a while, it says $0! So what does this do to my USD portfolio? It takes about $20,000 right off the value of the portfolio!

So I emailed Investopedia’s Simulator to ask for a correction to be made. This is the email I got:

“Hello,

Unfortunately, our third party data feed is providing all the quotes and
that quote is currently suggesting this price. This price may change
when the quotes are periodically refreshed.

Cheers,
Albert Phung
http://simulator.investopedia.com/

—–Original Message—–
From: Mr. Nabloid
Sent: Wednesday, November 14, 2007 5:39 PM
To: simsupport@investopedia.com
Subject: Simulator Contact Form

11/14/2007 5:38:58 PMTheir message was:
There is an error in the price of an option in my investing account
simulator (My Hedge Fund). Basically its the NAK BZ call option for Feb
2008 @ $2.50. It is NOT worthless and your investing simulator now has
it as worthless. The latest bid (as of when I wrote this) is $9.30 per
contract and the latest ask is $9.70 per contract.

PLEASE FIX THIS PROBLEM! This is the second email I’ve sent and have
heard nothing back. I’m tracking this account to see how well I’ll do
and now it shows a massive loss because of this error! Please fix it…
PLEASE!”

SO…

I guess I’m hooped unless their third party data feed fixes the problem! I’m going to email them and see if they will just credit my account back with either the ask price, or the original value. I don’t know if they will do that, but I’d rather get my original money back and not count my gain of 18% than lose 100% of the value when the option really does have value! OR, I will wait for some volume to be traded so they are worth money again… I really don’t know what to do though! Argh. This can ruin my entire trading portfolio and make this entire series a waste of time, even though I’ve done phenomenal!

I can also wait and Investopedia’s Simulator will sell an in-the-money option when it expires, for the value of the option, but if the value incorrectly says $0, this may screw it up. I mean, the stock trades at $11.99 a share and I own a $2.50 call option, so there is some value to my option but depending on how Investopedia executes it, it could screw it up! I’ve sent an email asking for clarification. The true value is $11.99 (stock price) - $2.50 (option price) = $9.49 per stock. Each contract is for 100 shares and I have 25 contracts, for a grand total of $23,725. I spent $7.70 x 100 x 25 contracts = $19,250. Gain = $4,475, a 23.25% gain. Oh, boy. This better get cleared up.

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