#71 - Does Buying Or Selling Options Affect The Stock's Price?
Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. In today’s daily call, we’re going to answer the question – “Does buying or selling options affect the stock’s price?” I think I got that right. I checked with my wife. That’s affect, not effect. I hate those two different words. That’s why I like options trading and math where you’re better than writing and grammar. But anyways, I think the question comes up a lot because people think that the options market drives a stock’s price. The reality is that in most cases… I would say in most cases because I rarely doubt that this is ever the case. But who knows if people see option activity and then as a result, change their dynamic in buying stock. But options are derivatives of stock pricing and stock underlyings which means that they derive their value from stock, but they are not necessarily tied to the stock’s price. In fact, we see this a lot where an option contract will go up and down in value because of the implied expectation that a stock might move, but that stock has not yet to move. We see this heading into earnings. We see this after earnings. That’s just one example. Does buying or selling of options really affect the stock’s price? No, it does not. However, I'm sure that if somebody is buying stock and if they glance at the options, maybe they have an inclination that somebody is buying options in one direction or another or they hear a story about a big firm or a big trader making an options trade. That might obviously impact the stock’s price a little bit, meaning that person might go in and buy stock or sell stock for that reason. But on the outside, options contracts are just purely derivatives of the actual underlying stocks. They don’t affect the actual position itself. That’s really it. Hopefully this helps out today. As always, if you guys have any comments or questions, let me know. Until next time, happy trading!
