No. of Recommendations: 5
Coming from standard equity trading this seems like an enormous spread. Is this typical for a small cap name?
A very wide bid/ask is pretty normal for a small cap, or even a large cap if the strike is far from the stock price.
The difference is that the bigger the stock is, the more of the bid/ask gap you can minimize by using limits.
On way-in-the-money calls on Berkshire, for example, you can normally shave off 1/4 of the bid/ask gap using limits.
e.g., if bid/ask if 40/44, you can generally count on being able to buy at 43 or sell at 41.
But for more obscure things like this, do all planning for put writing on the assumption that you won't do any better than hitting the bid when selling.
You should definitely try to improve this using a limit order, and you might get 5 or 10 cents more, but when deciding which position to open don't count on it.
If you want to sell a put, you need a contract with a bid that gives you enough to make it worthwhile. That's all that matters...the ask might be miles above that, but who cares?
It should be noted that BFH continues to fall in price, trading at $26.31 as I type.
About the only bullish thing you can say is that, having already fallen $222 per share so far, at least it can't fall another $27 : )
Of course, it's not even worth looking at any information if during your reading you decide there is a chance they will go bust.
Jim
