EFT Option Help

Discussion in 'Options' started by elynch2k3, Jul 23, 2010.

  1. elynch2k3


    I purchased a few XLF Aug $16 call options yesterday. This is the first time I purchased options on an ETF. With 4 weeks before expiration I did not think theta would be a issue yet. Yet with the XLF up .74% today, my postion is down 76%. I don't understand how this happened. Can someone please explain this to me? Thanks.
  2. MTE


    This type of question comes up from time to time here, and the answer is always IMPLIED VOLATILITY. If your long call goes down in value while the stock goes up then the most obvious reason is a decrease in the option's implied volatility.
  3. elynch2k3


    Thanks. I will do some homework and learn more about implied volatility.
  4. spindr0


    Unless it's an OTM 5 cent option :D
  5. Also, however, Aug is the front month now, so that's where theta would be highest. On Friday, the weekend days are taken account of, so any gains tend to be limited. IV is usually implicated, but especially if you're in the front month, you have to take account of theta. Also, changes in volatility affect the front month options the least.
    I don't know if you bought naked calls, but if you did, that's not really a good idea. Buying a vertical spread would be better. Maybe going out to Sept instead of Aug would also be better.