I have a question ...

  • Posted: 26 January 2011 06:37 PM

    I purchased Jan 2012 $305 Calls a couple of days ago, and even though AAPL went up the last couple of days, the call didn’t move. I’m new at buying options and I’m kind of disappointed at this. Most strike prices under or over $305 went up except a few finishing in 05 (295, 285, ...). What’s up with these 05? Tks.

         
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    Posted: 26 January 2011 06:48 PM #1

    Iceage - 26 January 2011 10:37 PM

    I purchased Jan 2012 $305 Calls a couple of days ago, and even though AAPL went up the last couple of days, the call didn’t move. I’m new at buying options and I’m kind of disappointed at this. Most strike prices under or over $305 went up except a few finishing in 05 (295, 285, ...). What’s up with these 05? Tks.

    I’m guessing you’re looking at the last trade instead of the bid. It’s a low volume, low open interest option and the last trade was two days ago at $60. But the bid is $65.40, so it has gone up.

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    Posted: 26 January 2011 06:54 PM #2

    The bid/ask is one thing, as Apple II+ pointed out.

    Also, the VIX went down quite a bit recently.  That affects IV, which has a significant downward effect on option premiums.

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  • Posted: 26 January 2011 07:11 PM #3

    When the stock was up $3.50 today my option was up app. 5%. When I checked back after the close the 5% gain was gone!

         
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    Posted: 26 January 2011 09:21 PM #4

    Iceage - 26 January 2011 11:11 PM

    When the stock was up $3.50 today my option was up app. 5%. When I checked back after the close the 5% gain was gone!

    These calls were not traded today at all.  There is no need to keep checking the price of a LEAPS.  For LEAPS, you’ve to decide when to close i.e. sell_to_close them or roll forward i.e. sell them and buy new ones.  Usually you don’t have to worry about them for awhile, so meanwhile read up on how to deal with LEAPS, is only a web search away grin.

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  • Posted: 26 January 2011 10:48 PM #5

    Mace - 27 January 2011 01:21 AM
    Iceage - 26 January 2011 11:11 PM

    When the stock was up $3.50 today my option was up app. 5%. When I checked back after the close the 5% gain was gone!

    These calls were not traded today at all.  There is no need to keep checking the price of a LEAPS.  For LEAPS, you’ve to decide when to close i.e. sell_to_close them or roll forward i.e. sell them and buy new ones.  Usually you don’t have to worry about them for awhile, so meanwhile read up on how to deal with LEAPS, is only a web search away grin.

    I understand but ... I purchased some 290’s at the same time and the gain as of today is 10% while my $305’s have a .14% gain. Like I said I’m new at this and I’m puzzle that a drop of $1 would erase a 5% gain that toke a $3.50 gain in the share price… I guess I have more reading to do!

         
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    Posted: 27 January 2011 11:54 AM #6

    From Stocks Simplified:

    The option Greeks are used to understand and predict the change in option prices. These stock Greeks are theoretical prices that are arrived with mathematical formulas. 

    To make it as an option buyer you must have at least some grasp on the Greeks. Many of the option trades who do not last very long do not understand these. These are not complicated concepts if you look at each individual Greek separately.

    1.  The Delta is used to measure the sensitivity of an option when compared to the stock. In other words it tells you how much your option will move for every one point move in the stock. If you have a delta of 50 that means your option will move $.5 for every move in the security.

    Because the Delta is measured for every $1 increase in price calls will have a positive delta and puts will have a negative delta.

    2.  The Gamma measures the rate of change in the delta. For instance if the Gamma is 1.1 then for every favorable $1 move in the stock the Delta will move up 1.1 vice versa. So if the delta is 50 and the stock moves up $1 the delta should now be 51.1.

    3.  The Theta measures the affect of time decay on an option. It measures how much value an option will lose for every 1 day that the option gets closer to expiration. If you have a theta of 3 then for every day that passes the option loses $.03.

    Theta is much bigger for shorter time periods. An option 20 days away from expiration will have a theta many times the size of a theta on an option 3 months out.

    4.  The Vega measures how much an option will change for every 1 percentage point change in implied volatility. If volatility goes up so will the price of the option. If it goes down the option will be negatively affected.

    5.  The Rho measures how much the option will move for every 1% change in the interest rate. This stock Greek is not used as much. Interest rates are relatively stable s the chances of it affecting your option is low.

    The option Greeks are powerful tools but one should remember that the numbers you get with these options.

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