$2000 Profit Off First Option Trade

[drcha]

You are right to paper trade them and watch how they move around, both near to and remote from expiration. You can look at all the graphs you want but to fully educate yourself, there is nothing like writing it on the spreadsheet and watching what it does.

 

[prc117f]

When you bought the options, they were worth $33, right? So that right there invalidates the statement you made about the options being worthless until they hit the strike price.

Your positive PnL is the result of the probability of these options becoming worth something increasing, simply put. Consider reading Natenberg or something like that before you start swinging 100s of SPY contracts around--not trying to be a dick, just want to help. Congrats on a good first trade.

Thats a good book, I remember years ago reading it front to back. Really good book, there is a new edition out.

 

[prc117f]

The thing is options pricing goes non linear as panic sets in and pricing models get stressed. BS or Binomial might price at X but if there is a whale who has a profit and he wants to get out and your at the top of the book, he will pay just to get out even if he paid more than what the model is pricing because he just wants to lock in his profit quickly and not wait till things get out of hand.
Of course once the trade crosses the spread, you will see a new IV and things reach equilibrium. (For the moment)