Both sides of a Delta neutral hedge losing value ?

A

Aston01

I was paper trading a OTM delta neutral hedge today and noticed that over the course of an hour towards the end of the day both sides were decreasing in value and I wasn't exactly sure why.

There wasn't a noticeable fluctuation in implied volatility and the underlying moved down enough to cause the Call to lose value as expected so it wasn't stagnant.

Any suggestions on what else could cause this to occur ?
 
I would have thought Theta, but it just seemed to occur over a relatively short period of time (an hour) and despite the trade being delta neutral at the top of pivot high on the broader trend.

As the underlying decreased in value the Call lost value as expected without the Put gaining enough to offset the loss.

Beyond a change in in Implied Volatility or an expected acceleration in Theta decay I couldn't think of what else might have caused both sides to devalue in such a scenario.

Just thought I would see if I was over looking something.
 
Quote from Aston01:

I would have thought Theta, but it just seemed to occur over a relatively short period of time (an hour) and despite the trade being delta neutral at the top of pivot high on the broader trend.

As the underlying decreased in value the Call lost value as expected without the Put gaining enough to offset the loss.

Beyond a change in in Implied Volatility or an expected acceleration in Theta decay I couldn't think of what else might have caused both sides to devalue in such a scenario.

Just thought I would see if I was over looking something.
More...

LTD before what's essentially a 4-day weekend.
 
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