What happened on my CSCO trade?

S

switze22

So I bought a CSCO 20 PUT for february, and was up 100% as of yesterday.

After hours the stock tanked 9%, and it opened today down abut 5%.

And then the put went down.

WTF happened
 
It could be the volatility dropped or the fact that CSCO is, although down, still trading at $22.40 well above the $20 put strike. With time to expiration about a week away the time decay is eating into the premium pretty heavily so with the stock still $2.40 above the strike the option price will not budge too much.


When trading options you want to be aware of volatility, time to expiration and the deltas of your options to better understand how it will react to changes in the price of the stock.
 
Quote from wenzi:

Implied Vol dropped , lowering the price of the put.
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it's still unusual, especially here on the put side with the stock on a dive: iv loss should not cut premo below previous close. premo ought still to inflate, some much as to reflect .1/.2d.
 
Quote from optioncoach:

It could be the volatility dropped or the fact that CSCO is, although down, still trading at $22.40 well above the $20 put strike. [...].
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most likely reason: that's quite far out.
 
All true optioncoach.

Yesterday CSCO started making a move down in the afternoon, and I think the IV jumped and pushed the price from ~0.09 to ~0.17 in the afternoon, but it was just a temporary jump in IV. I think that is what the OP meant. The delta is pretty low on those options so i don't think it was a price move to cause the option price to jump.

Quote from optioncoach:

It could be the volatility dropped or the fact that CSCO is, although down, still trading at $22.40 well above the $20 put strike. With time to expiration about a week away the time decay is eating into the premium pretty heavily so with the stock still $2.40 above the strike the option price will not budge too much.


When trading options you want to be aware of volatility, time to expiration and the deltas of your options to better understand how it will react to changes in the price of the stock.
More...
 
IV is derived from the option price, not the other way around

This close to expiry I've noticed spikes in option prices possibly because the perceived probability of the option reaching ITM increases as the underlying moves toward the strike.

A move away from the strike may deflate prices just as rapidly.

IV fluctuations for front month options may be extreme with little time remaining - all based on price.

Barring news or rumor that'd be my guess:D
 
That's why the old adage on the options floors when I was trading there. "Options are meant to be sold, not bought." Basically a OTM put at this point, slight move based on expectation, that was about it, IMO.


Don
 
When you have an option that is a full strike OTM with less than two weeks until expiration, the post earnings announcement IV contraction crushes it if the underlying doesn't move significantlly (several dollars). And given that the Feb 20p was trading for around 15 cents, it's not hard for the above event to turn a 100% gain into a loss.
 
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