Question regarding Option pricing-AMC Example

A

antares66

Hello, i know that option pricing is very complex: extrinsic, intrinsic, time decay, impl. volatilty.
But despite of that there are still some "mysteries" for me. Example AMC:
On thursday AMC´s closed at 42.81. The 43 call which expires next week 06.18 was priced at 7.47 and had no intrinsic value since the strike was above AMC´s closing price. Yesterday AMC moved up 15.39 % to 49.40 which was a net change of + 6.59 points. The call has now an intrinsic value of 6.40 (49.40-43). But this intrinsic value didn´t lead to an increase of the call from 7.47 to 13.87 (7.47 +6.40). The call is only priced at 9.90. Theta is 0.39. I can only explain that to myself with a change of impl. volatility. Did this change lead to a change of the extrinsic value? I´m using TOS. Is there a possibilty to look at impl. change in TOS?
 
Yes, it’s a change in IV, though the price and therefore IV reflect the supply & demand, so this is how the market prices this option, basically not expecting AMC to go much higher by next week.
Also, IV is simply a calculation from the price of the option, so you can calculate the previous and current IV based on the prices you provided. Google for some online option price & IV calculator.
In TOS you can view end-of-day prices and IV of the previous day using ThinkBack feature.
 
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antares66 said:
Hello, i know that option pricing is very complex: extrinsic, intrinsic, time decay, impl. volatilty.
But despite of that there are still some "mysteries" for me. Example AMC:
On thursday AMC´s closed at 42.81. The 43 call which expires next week 06.18 was priced at 7.47 and had no intrinsic value since the strike was above AMC´s closing price. Yesterday AMC moved up 15.39 % to 49.40 which was a net change of + 6.59 points. The call has now an intrinsic value of 6.40 (49.40-43). But this intrinsic value didn´t lead to an increase of the call from 7.47 to 13.87 (7.47 +6.40). The call is only priced at 9.90. Theta is 0.39. I can only explain that to myself with a change of impl. volatility. Did this change lead to a change of the extrinsic value? I´m using TOS. Is there a possibilty to look at impl. change in TOS?
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delta is the primary reason. you would expect the option to go up by (6.59)/2 + gamma related change + implied vol related change

Since the vol is implying a 15%ish daily move (i haven't actually checked but it's a very high number), you should see the option basically go up by about 3.75 which is kind of what you did.

Though your question is legitimate, AMC options are wacky land and i would not use them to learn options theory.

PS: i made up a delta of .5 and an implied vol of 225. at these levels of vol the dynamics of options are different than at normal option levels. So my greek valuations might be off.
 
antares66 said:
This was my mistake. I didn‘t consider delta.Thanks
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The thing is that the delta should increase with increase in IV due to Vega (and you could also involve Vomma), but all this doesn’t matter because sometimes the IV increased when AMC went up, while other times it decreased or didn’t change. So one person looking at the Delta one day may buy an option and make money, while on another day can look at the same delta and lose money with the same underlying price move. The greeks change so using greeks doesn’t provide much edge, except for pointless calculations. In the end you need to understand that the market decides about option prices, while greeks just reflect those prices.
 
I sold some of the 145 calls the week before last at 2.60 the day before expiration. I guess it was 6/4. It was crazy that it was so high.

I get the selling, but who is buying it?
 
Not on an ITM call..

If it's easier,does the likelihood of an OTM option being touched increase or decrease with a spike in Vol

guru said:
The thing is that the delta should increase with increase in IV due to Vega.
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If you go to the option chain, and load the Theo Price,Mark layout,you can make Vol/price/date adjustments

antares66 said:
Hello, i know that option pricing is very complex: extrinsic, intrinsic, time decay, impl. volatilty.
But despite of that there are still some "mysteries" for me. Example AMC:
On thursday AMC´s closed at 42.81. The 43 call which expires next week 06.18 was priced at 7.47 and had no intrinsic value since the strike was above AMC´s closing price. Yesterday AMC moved up 15.39 % to 49.40 which was a net change of + 6.59 points. The call has now an intrinsic value of 6.40 (49.40-43). But this intrinsic value didn´t lead to an increase of the call from 7.47 to 13.87 (7.47 +6.40). The call is only priced at 9.90. Theta is 0.39. I can only explain that to myself with a change of impl. volatility. Did this change lead to a change of the extrinsic value? I´m using TOS. Is there a possibilty to look at impl. change in TOS?
More...
 
taowave said:
Not on an ITM call..

If it's easier,does the likelihood of an OTM option being touched increase or decrease with a spike in Vol
More...


I think it was a slightly OTM call, though even with now an ITM call, wouldn’t the extrinsic premium be equal to the put price at the same strike, and therefore be affected by the same IV?
While I’ve stopped using greeks a long time ago because they’re blocking my peripheral vision. I now mainly trade option combos and do peek at Delta and Vega to asses if I’m not totally off somewhere, but I use mainly historical option pricing to put together combos based on how the prices actually behave. Surprisingly (or not) I’m able to assemble combos without greeks that in the end do exhibit my “desired greeks” like small delta (for low risk) and high Vega.
Which was my point here as well that greeks are just calculations based on prices, not the opposite. Someone came up with greeks after studying prices, so someone else can come up with “non-greeks”, name something “Broomhilda” and then use it to explain why the price is such and such.
 
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