How can a put decay if price goes down and there is more than enough time value left?

A

Arjun1

How can a put decay if price goes down and there is more than enough time value left?
I'm long Aug 70 EWZ puts. I saw EWZ gap down this morning and yet I saw no appreciation in my puts, they actually lost value.
I'm guessing it has something to do with dividends, but I don't understand how that works.
 

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It went ex-div today for 1.08. Since dividends are priced into options, then the options are going to behave normally as if there was no gap.

And since EWZ is trending from the open, there will be plenty of theta today.

Edit: "trending up from the open"

Another Edit: Actually, not much theta today. Delta and IV are getting you. Just look at it as an up day for the underlying.
 
But Chuck has a point. Know your greeks. Too many people have no clue why their long calls are decaying when the underlying is going up.
 
Screenshot-1.png

EWZ - 1 day chart - 9:30am to 1:00pm EST

You call that a gap down? Perhaps you are looking at the wrong chart.
 
Quote from Arjun1:

I saw EWZ gap down this morning and yet I saw no appreciation in my puts, they actually lost value.
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If you genuinely believe they're underpriced.. buy more of 'em! QED.
 
Quote from Arjun1:

How can a put decay if price goes down and there is more than enough time value left? I'm long Aug 70 EWZ puts. I saw EWZ gap down this morning and yet I saw no appreciation in my puts, they actually lost value. I'm guessing it has something to do with dividends, but I don't understand how that works.
More...
Change in implied volatility and underlying price are the reasons that option premiums change quickly (time decay acts slowly).

As others mentioned, what you observed was an ex-div date and that's already priced in.
 
Quote from ForexForex:

You call that a gap down? Perhaps you are looking at the wrong chart.
More...
Perhaps you need to include a dividend unadjusted chart including yesterday's close? Then maybe you'd have a clue what the OP was descibing?
 
Quote from spindr0:

Perhaps you need to include a dividend unadjusted chart including yesterday's close? Then maybe you'd have a clue what the OP was descibing?
More...


Screenshot-2.png



OK ..... I see now.
 
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