10 replies to this topic

[dowdeva]

Hello all, I am long GOOG 750 Jan 08 calls. On Monday, GOOG reached 623 -ish and the option jumped from 5 to 8.50. Then as the stock hung there for awhile, then dipped to 609 - ish on Tuesday, the option dipped to about 6 (I am operating on memory here, so forgive me). I expected this beforehand. Now, today the stock hits 631 and the option is still at 7? I am not an options pro like Denleo or one of the other experts here; just play them instead of stock in order to achieve more leverage, so some explanation would be appreciated. Am familiar with delta, not so much with the other Greeks. TIA, Deva

[TechSkeptic]

There is also time decay (theta), though I doubt if there would be that much decay in just one day for january options. What I think is causing the price behavior you observe is that premium can vary with sentiment as well. It can be inflated when people are expecting a big move and will go down when the players expect more stability. This is measured on indices with the $VIX, $VXN, etc. but the same phenomenon can happen on individual stocks. When Google broke 600, it likely caused a short term exuberance among the options players, which is now wearing off. Finally, options like anything else are affected by supply and demand. So if a big player decides they want to load up on calls, it will temporarily drive the price up more than would be indicated simply by the Greeks.

[arbman]

It is the change in the delta (gamma) that probably caused that initial jump since Friday's rally, once the rally stopped the gamma also changed, but not the actual price level, the delta should mature toward 1.0, if the price continues to increase though. The more it sits at the same level the less gamma you will get and this means less premium. You are paying pure premium. If you want returns that track with the performance of the stock, you should probably consider buying in the money options...

[dowdeva]

It is the change in the delta (gamma) that probably caused that initial jump since Friday's rally, once the rally stopped the gamma also changed, but not the actual price level, the delta should mature toward 1.0, if the price continues to increase though. The more it sits at the same level the less gamma you will get and this means less premium. You are paying pure premium. If you want returns that track with the performance of the stock, you should probably consider buying in the money options...

Kisa and Techskeptic,

I went back and check my quote board (Optionsxpress), and it seems that the jump from 626 to 630 was AFTER hours, so it wouldn't be reflected yet on options. I never expected something like that, so it never even occured for me to check AH.I am feeling pretty dumb now.

Maybe they are getting news tomorrow of a positive nature.

Still not sorry I asked the question though, as I continue to learn a heck of a lot from the posters here.

Thank you,

Deva

[tommyt]

either way...the option price varies because of the volatility number the market makers on the floor are running. During heavy demand periods, they raise the volatility and make buyers pay higher prices for the options...they also do this around special events (event risk) like earnings, which are coming next week. Shown below is the implied volatility in GOOG for the last year. Note what the implied does each earnings report (Jan,Apr,Jul, & Oct) you see the gold line (implied) shoot up into Goog's earnings. Players are being required to pay more for the event risk. And once the event is over, you see the implied drop way back, and quickly. I'm expecting the implied in Goog to be high for the next week until it reports next Thurs, then it will fall hard unless the stock is down >$100/share. A few days ago, I showed this same graph for Rimm, and how high the implied was before its earnings. Even though the stock was up 10-15 bucks the next day, the implied dropped big. I'm expecting a similar setup to occur in Goog next week, and will position accordingly.

[vitaminm]

Google Inc. (GOOG) At 4:00PM ET: 625.39 +10.21 (1.66%)


Out of money calls

http://finance.yahoo...........GOQAJ.X 7.00 -0.30

In the money call/GOOAT.X 56.80 + 5.10

http://finance.yahoo...s=GOOG&k=600.00

Near month in the money call /GOOJT.X 33.00 +7.00

Study this option chain and try to buy if possible in the money and nearest month calls.Some times Leap options are traded at higher premium.


http://www.volatilit..._calculator.htm

Hello all,

I am long GOOG 750 Jan 08 calls. On Monday, GOOG reached 623 -ish and the option jumped from 5 to 8.50. Then as the stock hung there for awhile, then dipped to 609 - ish on Tuesday, the option dipped to about 6 (I am operating on memory here, so forgive me). I expected this beforehand.

Now, today the stock hits 631 and the option is still at 7?

I am not an options pro like Denleo or one of the other experts here; just play them instead of stock in order to achieve more leverage, so some explanation would be appreciated. Am familiar with delta, not so much with the other Greeks.

TIA,

Deva

[NAV]

Dowdeva, Theta around .2 on Jan options cannot influence the price so much, since you are talking only about 2-3 days. I doubt even Gamma which is so miniscule around .003 can affect the premium so much. It's called the volatility crush or the volatility implosion. I agree with Tommyt.

[Drano]

As far as front-month or further out options -- This depends a lot on your risk tolerance. Usually I try to buy at least a month further out than where I think the move will be. If the trade goes in your direction earlier, you may give up some profit -- but if it takes longer than you think, having an extra month can turn what would have been a 100% loss into a profitable trade.

[VolPivots]

Don't trade options a whole lot these dayz, but oftentimes a drop in premium can precede a fall in the stock (or signal limited upside)....in the simplest sense demand drops for the calls or someone's selling 'em as hedges and capturing the premium against underlying length. Maybe an early warning sign....then again maybe not. When we hear a 4-1 stock split and $1000 price target (remember Qualcom wayyy back), get the ##@% outta dodge

[denleo]

If we are talking about January options, there can only be two answers: 1. Either you are not tracking this option right. If you just look at the last trade, which may not represent the accurate picture, which is only visible at bid/offer, your "tracking" could be wrong. 2. Or there was a substantial volatily of volatility. In other words VEGA is jumping back and forth. As other posters noted, theta and gamma can be disregarded in this case. I hope it helps. Denleo