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Why are the option prices on

Sears Holdings


so high?

-- C.B.

Steven Smith:

The options on Sears Holdings do not strike me as particularly expensive on a relative basis. Their current implied volatility is around the $44 level, which is near the midpoint of its six-month range and only a few percentage points above the stock's six-month historical or real volatility.

The absolute price of the options may seem expensive, but this simply might be a function of the fact that Sears is a high-priced stock. All else being equal, the 30-day at-the-money option on a $150 stock would have a theoretical value of $7.75, while the at-the-money call on a $50 stock would have a theoretical value of just $2.60.

Steven Smith writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;

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