Call option value drops in half after overnight 7% gain in stock?

N

Nolan Mendoza

so, I've been kinda perplexed by this.. On Thursday I bought some Dec. 20 $130 call options on ULTA for $4.40.. I was confident they were going to beat their earnings report, and they did! The stock was up 7% after hours.. Yay! this usually means a 80-120% return for me... Into the morning the stock hovered around +5-8% but my options were losing value... I noticed something wasn't right.. Usually my money almost doubles but I was losing money after a 7% gain.. so I sold... At the end of Friday the Dec. 20 $130 options were trading for only 2.20 half of what they were selling for on Thursday before a ~5% bump..

It couldn't have been time value.. It was a day.. any other ideas what it could have been? implied volatility? I don't know... How can an option value cut in half after a positive 5% day...
 
It's post earnings. The IV has collapsed.

The ATM IV on Dec 3rd was pricing a 10% move. You weren't wrong in buying that call. It was underpriced because previous moves in the last 2 quarters were around 15%. I almost bought the straddle.

It just didn't move enough.
 
xandman said:
It's post earnings. The IV has collapsed.

The ATM IV on Dec 3rd was pricing a 10% move. You weren't wrong in buying that call. It was underpriced because previous moves in the last 2 quarters were around 15%. I almost bought the straddle.

It just didn't move enough.
More...

O ok.. I figured it had to be the implied volatility... So it was expecting a 10-15% jump.. Interesting.. Thanks for the reply, I appreciate it
 
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