I'm trying for curiosity my first options trades.
Last week I bought puts on $ASTS expiring 30 August.
Strike of asts is 25, and I paid around 65$ to open one position.
Its down 50% but the stock price didnt move at all. Is cause of theta?
I dont really understand options so I'm using some money to try to figure it out as I've read many posts and other stuff but never really understood them on a theorical level.
If anyone has any good resources I would appreciate
A good soul who can help me understand options
byu/Emilstyle1991 inoptions
Posted by Emilstyle1991
8 Comments
Why buy options before you understand what you’re doing?
https://www.investopedia.com
Read through everything there to do with options
So .65 your break even would be 25.65 and there would t be a factor at that point because you are In The Money
If you paid 65 and your break even is 31.50 you are still in the money and that’s wouldn’t have much factor in there
The fact is that ASTS shot up to 40$ and you didn’t sell it closed at 32.86 hence why so much profit has evaporated from the porfolio
I am Greek but I will explain it without the Greeks. You paid 65 because you had 2 weeks time for the price to go lower than 25. Good chances it would happen. You paid the price for these chances.
Now 1 week has passed and you have one week only for the price of the shares to go lower than 25. In the meantime not only didn’t it go the desired direction but it went a little higher. The chances that it will go below 25 are now much lower and the time for this to occur much narrower.
Therefore less people are interested to bet on this event and therefore you want to get rid of these options. Therefore the price of the options is much lower now.
On coming Thursday and Friday and if the price of ASTS shares is around 30 or higher, your options will be worth approximately zero cents. Because they will be of no use and nobody will want to have them.
Remember: the price of the shares (“the underlying asset”) goes to the desired direction: the options price increases.
The time is passing: the price of the options decreases.
There is too much too learn to explain in a short post. First of all. Buying calls or puts is not a good strategy. Theta (time decay) works against you. I would suggest learning about covered calls (the wheel strategy) or vertical spreads. Spreads are low cost and defined risk trades. The wheel strategy for a covered call is good if you already invest in stocks or are planning to do so. My 2 cents.
Try OptionStrat.com for modeling different scenarios…
You should absolutely use a paper trading account before you try to trade options. Reading how they work is one thing but they only really start making sense once you see it in practice. Not just a few trades either, but a lot.
Options are not just about being right (stock will go up or down) but being right enough, about how up or down it will go and in what time frame. You need to understand how theta decay works, how IV works and how options contracts are priced. Not exactly because that’s impossible, they change every second, but roughly speaking you need to be able to intuitively understand these things. You’re correct in that your contracts lost value due to theta decay. Whatever contract you’re thinking of getting get double the expiration and then some. Time is your number one enemy. Theta decay is not linear, so it starts out slow and accelerates.
Use a sim account, not for a handful of trades until you get a green one, many of them, dozens if not hundreds. Only once you’re actually somewhat consistent should you consider trading with your money.
For the love….if you’re new to options, stick to selling.
First, try to understand the value of an option at expiration. Then, ask yourself if this method allows you to price the option at any other time points. Explore different pricing models, starting with Black-Scholes, to understand how options may be priced before expiration.