Newbie question: stock up, option down, why?

D

dolbo

Hi Guys,

I am learning about options and I am reading about the greeks, volatility, time decay etc etc

Just to practice, I bought one contract of AAPL Sep 12 680 Call
today at 10:52:06. The price (ask) was $15.35

The stock price was about $658 at the time.

But almost immediately after I bought it, the option price went down sharply then it rebounded a little bit and closed at $13.60.
That's about a 12% loss (not even accounting for slippage).

But the stock price continued to rise throughout the day and it closed at $665.


How can this be? What happened? Volatility? Time decay?
Here are the current numbers:

IV 24.4
Vega: 0.817
Delta: 39


In my case the stock increased in value by 7 points. Since delta is 39, that should bring the option value up by $2.8?

If so, then what kind of a volatility change would have decreased the option price so much? If vega is 0.8, this must have been like a 30% hike right before I bought it? Something isn't right in my calculations.

Not sure where to start, I looked at the ^VIX chart and it was $14.72 around that time but then it later went down to $14.20. Then I also looked at VXAPL... Not sure... it is the one that I should look at? The chart I am looking at is at the CBOE website and it is kind of small. I can tell that it spiked briefly then went down. And the spike was at noon. And it doesn't seem that big.


Not sure if I am on track here.


Is it possible to lose that much intraday just because of a change in IV despite the increase in stock price? This can't be right.
 
When you say the option price went down, which price exactly are you talking about?

Last, bid, ask,...?
 
Quote from dolbo:


How can this be? What happened? Volatility? Time decay?
Here are the current numbers:
More...

Buying straight calls or puts as a directional bet is more often than not an exercise in futility. You'll generally need a major move in the underlying to overcome all the gremlins fighting you on the option side. And if there isn't a big move at the right time, you can end up with a winning directional trade on the underlying, and little or nothing to show for your investment in the option.
 
http://25yearsofprogramming.com/blog/20070411.htm#mostlosemoney

When people ask me how to get started in trading options my answer is "DON'T"

You would need to trade ON PAPER for several years in order to gain the depth of experience necessary to successfully trade options.

If you trade live you will lose money for literally years.


Knowing the basics qualifies you to watch... nothing else.

BTW the trade you chose to start, a directional trade, is the least likely to be successful and requires the most skill and luck.
 
Many times options prices will be exaggerated on strong uptrends or downtrends and then when there is a correction, that will also be exaggerated all intraday.

Strong trends bring out big demand especially in aapl which exaggerates option prices relative to the stock move.

As an option day trader, be aware of this and when the strong trend starts slowing down, get out.

Also, don't buy highly priced options to play intraday moves because you put too much money at risk. Instead, buy weeklies that are priced much less with little or no intrinsic value so you can benefit from big price moves but you don't have that much money at risk.
 
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