I believe ABC company stock price @$22.00 will decline by 50% in the next 3 months. Would someone tell me and explain to me if I buy a long put on this option, with a position of $10,000, what my return would be, if I am right?
If you buy a put you have the right (but cannot be forced) to sell stock at K price (the strike price) to the seller of the put until the expiry of that option. 1 put in US markets is for 100 shares. The rest is arithmetic and looking up the market prices of puts.
There are many puts you can buy so you’d have to provide more specifics. But if for example you bought a 22 put and the stock price goes to $11 when the put expires then your 22 put will also be worth $11. If that put costs $5 today then you’d make $6 on $5 investment: 120% ROI. Though often a better approach is to buy a put spread, for example buying a $22 put and selling $20 put. This way you only need the stock to go below $20 to cash out $2 (max value of such spread, as there is $2 difference between the puts). Such spread may cost $1, giving you 100% ROI. Lower spreads like 15P/18P may give you higher ROI. (these numbers are per share with each option controlling 100 shares, so a $5 put would actually cost $500).
Welcome to ET. A word of caution from an amateur retail: Unless you have insider information, very likely the put options already priced in the likely 50% decline that you believed. i.e. the puts are going to be expensive, so much so that even if the stock decline 50% you may not make any money. Assuming you are smarter then the professionals, the market makers, the next challenge is to buy the correct strike, correct timing/maturity... otherwise you will still incur a loss even if you correctly predicted the decline. Trading options is exciting and challenging. It is a game of probabilities and chances, not unlike blackjack and poker. Those of us retails riding this bull market since 2009 are doing great but that is more luck than skill. Real skills will only show when this bull market stops. Like Buffett said: You only find out who is swimming naked when the tide goes out.
According to this logic, what do you think the market has priced for INTC which is reporting earnings after end of day?
Longer dated options (> 1 month) have IV ~33%, LEAP IV ~29% vs ~90% from your chart. Someone here said IV = Diffusive IV + Jump IV. Jump IV is due to earning uncertainty priced in. LEAP have very small Jump IV.
~ATM put historical price as of close today 1-24-19: After hour stock price dropped by ~$3.6. Someone please explain to us if the potential price movement was priced in.
I shorted at the close and bought a OTM call (instead of stop loss since a gap up on ER would blow through). My feeling is that the weeklies which are shown above priced in a decline. I can't say INTCs movement today was anything other than market manipulation to be honest.
The market assumed a 3.6$ move would happen roughly 11% of the time (assuming mean 0) by the close tomorrow. The implied close-close move was 4.5% right before the close today.