bidu puts

J

joeski

I have some bidu dec 350 puts that I purchased on 12/03. In the interim, bidu ran up on the naz-100 inclusion news, but now the underlying is back down to exactly where I bought it. On today's down move, the calls near ATM have all lost $6-$7, but the puts have only gone up $1. Specifically, my 350's are only up .3, lagging break-even by $5, even though the underlying is now the same price as it was only 3 trading days ago.

My question is, why are the puts not moving with the calls? I am obviously missing something. Is the time value eroding faster than I expect, or is it simply a reflection of overall bullishness about bidu? I am new to puts, so I would like to learn from this mistake.

Thanks.
 
You should study Implied Volatility, which has gone down on BIDU and will collapse very fast as expiration gets closer. BIDU is a volatile stock so it options are expensive to make it worth the risk of selling options.

I would consider selling an equal amount of BIDU December 330 puts @ $2.80 to turn your position into a debt spread to cut any losses if BIDU doesn't close below $350.00. Maximum gain would still be very good, and since you have the 350 puts you don't need any extra margin in your account.

Study:
  • Implied Volatility
  • Credit Spreads
  • Debt Spreads
  • Strangles and Straddles
 
I had the same experience once, on a BIDU put as well. I am a rookie trader, but my guess is that its probably a little of both-time erosion and bullishness. I have seen some of those puts gain traction though, but only when BIDU gets a price adjustment., like when it would tank and lose 15-30 bucks on the stock price. I usually stay with the calls on BIDU myself. It feels good when the price of a call triples in 2 days!!!
 
Thanks for the replies.

The debt spread idea is a good one; I'll think about it. The problem is, I'm still have a lot of conviction that bidu cannot hold 390, so maybe I should let it ride. In retrospect, I should have straddled when I bought the puts. The one thing you can be sure about with bidu is that it won't stay still very long...
 
Quote from joeski:

Thanks for the replies.

The debt spread idea is a good one; I'll think about it. The problem is, I'm still have a lot of conviction that bidu cannot hold 390, so maybe I should let it ride. In retrospect, I should have straddled when I bought the puts. The one thing you can be sure about with bidu is that it won't stay still very long...
More...

Your option price deteriorated mostly due to a crush in implied volatility. I believe the atm vols dropped around 12 pts. Skew also came off a decent amount. For bidu, if you believe the stock will move in the short term, try selling a calendar (front month vols are well below the mids). Long dec, short jan8 or more preferably mar8.

Bidu is a fun trade.
 
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