Why are there so many strike prices for an option?

Question

i looked at Citigroup( C) Call option today n noticed that the strike prices ranging from 2.5 to 40. Why is that so? C stock price is at 18.98 at the moment. The volume n open interest are even low for some Strike prices. why?

-Also, wanna ask why most of the options expire worthless? (cboe statistics), isn't it better off to exercise the option n get whatever value from the option price, rather than nothing at all?

Thanks a bunch for your help....

Answer 1

During the past year, C has traded as high as 54 and as low as 14. The options cover all expected values.

Why options expire worthless? This is an incredibly broad and cumbersome question, like why don't they all expire in the money? The simplest answer is that the future cannot be known, and only one narrow range of prices win.

Another more relative answer is that options are "supposed" to expire worthless, because that is what they are designed to do, during ordinary market action. When purchasing an option, you are insuring against, or betting on something unknown and out of the ordinary.

Again, the subject is too broad. You can also sell the option or create spreads and straddles, or bet on the underlying doing nothing, or use the option as a hedge.

Answer 2

<<< looked at Citigroup( C) Call option today n noticed that the strike prices ranging from 2.5 to 40. Why is that so?>>>

Strike prices are created based upon demand. When a new expiration month is added strike prices are created to meet the projected demand. For a widely traded stock which has seen big changes in the stock price recently, that means more strike prices. It is also possible to have strike prices added. Anyone can request a new strike price and, assuming it is a reasonable request, the request is usually honored.

<<<The volume n open interest are even low for some Strike prices. why?>>>

Usually strike prices closest to the stock price are more heavily traded. Strike prices further away from the stock price are less heavily traded, hence they have lower volume and open interest.

<<<Also, wanna ask why most of the options expire worthless? (cboe statistics), >>>

According to the statistics I have seen from the CBOE, most options are closed before expiration. Less than half of all options expire worthless, and even fewer are exercised.

<<<isn't it better off to exercise the option n get whatever value from the option price, rather than nothing at all?>>>

If the option is out of the money it is better to let the option expire instead of exercising it.

If the option is in the money it is better to sell it or exercise instead of letting it expire worthless.

For example, assume a stock is selling for $45 per share and you own two call options, one with a $40 strike price and one with a $50 stirke price. If you exercise the option with the $40 strike price you will buy the stock for $40 per share, which you can immediately sell for $45 per share for a $5 per share gain. Obbiously it is better to exercise it than to let it expire. If you exercise the stock with a $50 strike price you will buy the stock for $50 per share. Since you could buy the stock for $45 per share without the option, you would be throwing away $5 per share by exercising the option. It would be better to let it expire than to exercise it.

For all practical purposes you can assume every option that expires worthless was out of the money at expiration.