New guy and the new math ....

wburt1948

wburt1948

Trying to keep the cost of my education at a minimum.
Bought a July 2 $2.50 Put, one contract for a total (with commision) at $40.52. Stock price was at $2.86.
Stock price dropped to $2.81 and the options contract price dropped to $17.50. Isn't the option price supposed to rise as the stock gets closer towards the strike price?

Stock went back up to $2.86 in 30 minutes and options price remained at $17.50.
To complicate my brain, I see that there are no bids now in the ask column of this option. Perhaps it's worthless but my loss is limited to $40.52
Thanks all.
 
wburt1948 said:
Trying to keep the cost of my education at a minimum.
Bought a July 2 $2.50 Put, one contract for a total (with commision) at $40.52. Stock price was at $2.86.
Stock price dropped to $2.81 and the options contract price dropped to $17.50. Isn't the option price supposed to rise as the stock gets closer towards the strike price?

Stock went back up to $2.86 in 30 minutes and options price remained at $17.50.
To complicate my brain, I see that there are no bids now in the ask column of this option. Perhaps it's worthless but my loss is limited to $40.52
Thanks all.
More...

You may be under the impression, which is not unusual, that options contracts are tied directly to the movement of the underlying. But they are not. Often approximate. But not direct.

The options market is not the stock market.

A lot has to do with the greeks, especially Delta and Theta. And in your case, options volume is probably playing a big role.
 
OK, thanks. I'll see if I can take a look at volume data next time before placing a trade. But, my understanding about how the option should be priced is correct isn't it. Option price should rise as stock price drops with a bought Put. I understand that it's not directly related but generally so is/was my understanding.
 
wburt1948 said:
OK, thanks. I'll see if I can take a look at volume data next time before placing a trade. But, my understanding about how the option should be priced is correct isn't it. Option price should rise as stock price drops with a bought Put. I understand that it's not directly related but generally so is/was my understanding.
More...

Yes, a long put is a bet that the underlying will fall. But it is also a bet that the underlying will fall within a certain time frame, and at a certain percentage, and with volatility within a certain range, and with tight bid-ask option spreads, and roughly 20 other factors falling in your favor.

So, yes, the word "Should" is operative here. But it is also a dangerous word to rely on in the options market.
 
Got it. Selected a stock that was cheap, has very strong sell recommendation from this site:
https://www.tradingview.com/screener/
I see that the Theta listed for this is now -0.97 It has a 7/2 expiration.

I'm assuming that since it has zero bids, that it will not sell. Lesson learned. Look at volume.

Thanks again for your kind advice.
 
wburt1948 said:
Trying to keep the cost of my education at a minimum.
Bought a July 2 $2.50 Put, one contract for a total (with commision) at $40.52. Stock price was at $2.86.
Stock price dropped to $2.81 and the options contract price dropped to $17.50. Isn't the option price supposed to rise as the stock gets closer towards the strike price?

Stock went back up to $2.86 in 30 minutes and options price remained at $17.50.
To complicate my brain, I see that there are no bids now in the ask column of this option. Perhaps it's worthless but my loss is limited to $40.52
Thanks all.
More...

If you listed the stock and the actual option and the dates traded this would be solved in 10 seconds
 
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