New guy and the new math ....

Credit to you for at least holding yourself to a single contract.

Debit to you for following some lame-ass stock pick on a POS with low volume.
 
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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.
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There is such a thing as time decay and it is largest the closer you are to expiration. If you want to buy options, you have to give yourself more time. That would be 3 months out from today. You want to be in the money or at the money to increase your chances at making monies. You have to get both direction of the stock and movement (a large movement) in your favor in the shortest possible time to have a fair shot at making any monies buying stock options. Option interest (volume), you want about 200 contracts or higher and the bid and ask spreads narrower as opposed to wider. The wider the spread between bid and ask, the greater the possibility you will lose monies on slippage. You will lose more times buying options. My win rate is around 40%. Do not be deceived you can make monies at only a 40% win rate provided you have risk management rules that you follow. Never risk more than 2% per trade. Of course, the size of your winners should be several times that of your losers.
 
I appreciate your reply. This helps a lot. Regarding volume, do you mean I should see if there at least 200 contracts written(existing), or that I should buy 200 contracts going in? That would be steep. I'm sure I can find the existing volume somewhere associated with the broker's web site. I've had one unicorn so far, the rest are pending.
Thanks again.
 
wburt1948 said:
I appreciate your reply. This helps a lot. Regarding volume, do you mean I should see if there at least 200 contracts written(existing), or that I should buy 200 contracts going in? That would be steep. I'm sure I can find the existing volume somewhere associated with the broker's web site. I've had one unicorn so far, the rest are pending.
Thanks again.
More...

You should look at open interest and make sure there are atleast, 200 contracts to make sure you are able to get out if you have too. Also, the bid and ask spreads must not be too wide. Slippage is real and cost you what profits you earn. The number of contracts you buy is up to you but, if you are starting out, stick to just 1 contract per trade. That would allow you to learn without risking too much. Your total risk is the cost of the premium assuming a 100% total loss. Of course, you can sell any time even on the option expiration date if you so choose.
 
I'll poke around the broker's web site to see where the open interest is on options. Won't make the same mistake twice. So that would be 200 open bids as I buy a contract, right?
 
Hmmm ... sorry I don't follow. Do you mean that bid and ask volumes should be close to each other so that the bids don't grossly outweigh the asks when it comes time to sell? I understand that I should look for bid and ask prices closer to each other than I have been doing.
 
wburt1948 said:
I'll poke around the broker's web site to see where the open interest is on options. Won't make the same mistake twice. So that would be 200 open bids as I buy a contract, right?
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200 bids would be best, but that’s different from open interest that shows how many people currently hold such option (long or short). If no one else trades and holds those contracts then you’ll be the only one getting screwed.
Both bid size and open interest are shown on most option chains. You may need to select/add those columns, depending on your broker/software.
 
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