I bought $OMEX .5 10/18 puts after playing what I thought was a dead cat bounce. The price of the stock was $1.31 when I bought. They are down about 30% since and were down more than 40 at one point. So with such a drop, I figure I’m at LEAST up on the trade and more expect to be up big. But even with -30%, I’m down 50% on the trade. It doesn’t make any sense to me. Can someone explain how this is, and what I did wrong to be so right on the action and yet still lose so much? Thanks for any help.
I get it’s not as simple as, your put goes down so your value goes up, but…
byu/Over_Season803 inoptions
Posted by Over_Season803
6 Comments
Implied Volatility on that ticker / strike > 400. Your delta (rate of option contract gain / loss compared to the change in underlying is probably 0.1
One of your problems is a very wide bid ask spread. The bid is $5 the ask is $10, which on more expensive options is the norm, but on cheap options it’s a lot. Theta is of course working against you, although I think it’s only since 9/18 when you entered? The stock still has to lose nearly 50% of its value in the next few weeks for your put to be at the money. Additionally the delta is only .12. The stock has to move a lot to see much option price movement. Very good entry though, well timed. The $1 strike would have been better, but still not great due to the bid/ask.
The Greeks are rolling numbers. They don’t stay the same. Not only does movement of the underlying change them but also time- for Delta Gamma and Theta.
What happened is the trade went negative and all of your Greeks fell. The longer it stays negative the more difficult it is to get out of the red. It’s because the Greeks continue to decline even if the underlying is stationary.
What arguably happened here is once the trade went negative, as the underlying went upward, volatility also fell, which had a direct impact on value or price of the option(s), whereas although bidirectional, volatility inherently increases when prices fall.
Buying cheap OTM options makes what happened here happen faster. IJS.
Instances like this are why I trade volatility instead of direction when buying options and I only trade 0DTE.
Later DTE is a suckers bet on the buying side, whereas it gives time for market makers to sweep the trade.
LATER DTE options are designed for Institutional options sellers. Therefore, if you’re buying long options with later DTEs beyond 1DTE, IMO, you’re basically giving your money away. IJS.
At 50% loss you’re cooked. It’s over. Sell now or lose it all.
This is why you learn Greeks FIRST not “buy calls when you’re bullish and puts when you’re bearish”
Your bought a put at strike price 0.50 on a 1.30 stock and wonder why it is not profitable?
lol, beautiful.
where does one even start to answer such a Q. I mean wtf are you doing
A. Stop trading options until you understand how they work