CME options melting fast !

H

hellomarket

I am hoping someone can give me some insights on what happened to my April CME puts I bought starting a little more than 2 weeks ago. I bought one April 370 put at 2.45, the stock has not moved since then and it's now bid at only 0.35. When it went down under 1 late last week I figured my analysis was still valid and I then bought one April 380 put for 1.10 in order to take advantage of the slightest correction in the coming days. Now the 380 put is at 0.75. I realized volatility has dropped from about 30% to 24% today since my first purchase . At the same time other exchange stocks have started to drop, especially today. But CME actually went up ! What is going on ? I still think CME could tank by expiration I don't see why those options are melting so fast, a couple of days theta was -0.9 now it's - 0.14 and -0.16, these option are losing 15 cents a day! That's ridiculous, there is one month left to expiration or maybe there is something I don't know. I am fairly new to options but I can say I have never seen an option go down that fast, I feel like I have been cheated.
 
Quote from hellomarket:

I am hoping someone can give me some insights on what happened to my April CME puts I bought a little more than 2 weeks ago. I bought one April 370 put at 2.45, the stock has not moved since then and it's now bid at only 0.35. When it went down under 1 late last week I figured my analysis was still valid and I then bought one April 380 put for 1.10 in order to take advantage of the slightest correction in the coming days now the 380 put is at 0.75. I realized volatility has dropped from about 30% to 24% today since my first purchase . At the same time other exchange stocks have started to drop, especially today. But CME actually went up ! What is going on ? I still think CME could tank by expiration I don't see why those options are melting so fast, a coupel of days theta was 0.9 now it's - 0.14 and -0.16, these option lose 15 cents a day! That's ridiculous , there is one month left to expiration or maybe there is something I don't know. I am fairly new to options but I can say I have never seen an option go down that fast, I feel like I have been cheated.
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buying short term options is like buying ice cubes on a hot day. as time passes they melt.
 
Quote from hellomarket:

I am hoping someone can give me some insights on what happened to my April CME puts I bought a little more than 2 weeks ago. I bought one April 370 put at 2.45, the stock has not moved since then and it's now bid at only 0.35. When it went down under 1 late last week I figured my analysis was still valid and I then bought one April 380 put for 1.10 in order to take advantage of the slightest correction in the coming days. Now the 380 put is at 0.75. I realized volatility has dropped from about 30% to 24% today since my first purchase . At the same time other exchange stocks have started to drop, especially today. But CME actually went up ! What is going on ? I still think CME could tank by expiration I don't see why those options are melting so fast, a couple of days theta was -0.9 now it's - 0.14 and -0.16, these option are losing 15 cents a day! That's ridiculous, there is one month left to expiration or maybe there is something I don't know. I am fairly new to options but I can say I have never seen an option go down that fast, I feel like I have been cheated.
More...

couple of sites posted "expected" report date as 4/26 . This fact make APR options neutral/event free , hence , a collapse in IV.
 
Quote from IV_Trader:

couple of sites posted "expected" report date as 4/26 . This fact make APR options neutral/event free , hence , a collapse in IV.
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What do you mean? There won't be any news until 4/26 hence collapse in vol ? What's APR options neutral/event free? sorry
 
it happens sometimes for no particular reason...but ya, postponed or cancelled highly anticipated news events can cause theta to rise substantially in matter of days.
 
hellomarket,
As the others have mentioned, you are seeing the rapid erosion of time-decay in the last month of an options life. Time decay (theta) does not move in a straight line, rather it erodes at a much quicker pace in the last month. Here's a good visual:

http://www.optiontradingtips.com/greeks/theta.html

Hope this helps,

Regards,
Steve
http://www.options-trading-resources.com/EliteTrSig

Option trading information and tools the pros wish they had! A former Chicago Mercantile Exchange employee reviews stock option trading software, books, and web sites and online income opportunity.
 
Option Statistics (CME)

Today's Option Volume* 3,287
Avg Option Volume 8,239
Open Interest* 60,843
Avg Open Interest 71,274
Avg Put Call Ratio 1
Historic Volatility (30 day) 21.83
Put Call Ratio 0.87
Implied Volatility 23.94

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1018751>
 

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