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Explain this price action?

  1. Yesterday near the close I bought some OTM calls on SOXL ($136.14 at the time).

    Jan192018 $163C $2.84

    This was pretty close to the middle of the spread. Delta was ~ 0.2 when I placed the trade.

    Today SOXL gapped up and then wound its way down to close ~ $133.75, which was some $2.39 below the underlying when I purchased the calls. I would expect the price change due to delta alone to be some $0.48 (ignoring any drop in delta as the calls went farther OTM), and I would also expect time decay to be about $0.08 (original price divided by roughly 42 days to expiration). So, disregarding volatility effects, I can see my way to these calls dropping from $2.84 to $2.28 or so.

    The middle of the bid/ask is currently $1.90, which seems like too big a drop, especially if volatility climbed. (I can't find IV/HV data right at the moment, as I'm trading with a new broker and still trying to find my way around their site.)

    Am I missing something? LOL.
     
  2. Your numbers make sense. The closing quote of $1.55 x $2.25 does not so I'd attribute that to:

    1) a stale option quote
    2) the effect of the spread widening on one or both sides when the market closes
    3) an IV drop of .03

    I'd lean toward #3. You'll find out Monday morning
     
  3. I didn't feel like the price climbed as much as it should have at the open, either. I attributed that to volatility dropping (i.e., long vega fights long delta as underlying rises and volatility drops). Can the nature of the volatility skew explain both effects?

    IV hates me.
     
  4. IV skew applies to the volatility smile across different strikes. You're looking at intraday price change of a single strike so AFAIC, skew has nothing to do with this.
     
  5. There was a thread started a week ago discussing anticipation vs reaction which is pertinent to this thread of "Explain this price action" for stock code SOXL.
    https://www.elitetrader.com/et/threads/anticipation-vs-reaction.315575/
    I'm not an options guy but placing a call on SOXL was an anticipation trade in my book with a good probability for failure.
    If you look at this chart you will see a bit more on why this would also be high risk anticipating a bullish move.
    https://www.barchart.com/etfs-funds...=0&sym=SOXL&grid=1&height=500&studyheight=100
    Not wishing to say "told you so" after the fact, but going long at this point is a tad premature and trade is best done after a more solid signal rather than jumping in too early.
     
  6. I'm not at all interested in talking about the reason why I placed the trade. Suffice it to say it's part of my plan, which works well enough to be profitable over the long haul. I didn't anticipate jack. I got my signal and placed the trade. I'll take the trade off when that signal flashes.
     
  7. Single day price action should not matter. This trade had all the ingredients for going LONG. I would stick in there until your system issues a reversal/exit order.
     
  8. also...this is a 3X leveraged position. While theoretically that should have nothing to do with the option pricing, I've found that the options on these these mult-leveraged etfs do some funky things on a weekly close.
     
  9. Thanks everyone. I'm just gonna watch it for a bit.
     
  10. You probably had some delta losses and some Vega losses :) what's so unusual?
     
  11. ROFLMAO..LONG? This suckerbill is headed down some more.
     
  12. Sshhhhhhhh! Quiet bro. :)
    I'm waiting for smart ass to get his beans handed to him on this trade.
    Suffice to say I put OP on ignore for being a smart ass.
     
  13. I like this little trading contest.............even if I lose.......heck, we gave it hell !!

    Still sticking to my position of LONG on SOXL.
     
  14. Well...ok....
    .....
     
  15. Well, you won't see this since you have me on ignore, but suffice it to say I didn't ask for trading advice. And if my response was enough to trigger you, then you're a puss.
     
  16. LOL. You asked for information that might explain the pricing discrepancy of the option you bought and posters want you to justify why you took that position? Shaking my head and wondering why some people need to reply...
     
  17. I get it, everyone on here is a trading guru, but I'm just a schlub engineer trying to augment my retirement portfolio. I dig math, so I'm drawn to options. I backtest to the degree I can. Then I hope! I am not a quant by any stretch of the imagination but I'll bet dollars to donuts that I've spent far more time with differential equations and PDE's than 99% of the people here, half of whom want to jump on the bandwagon and criticize because why not? (Not talking about you, spindr0.)
     
  18. Would move stop loss to $133.40 on this long trade.

    Today it went upto $137 but it seems down turn is more likely now.
     
  19. Stopped out on the LONG trade on SOXL.

    Trading is like a game of ping pong, got to take the losses along with the gainers and try to come out winner in the end.
     
  20. On the money.
     
  21. I don't recall asking for advice on the trade itself. I'll let you know when I sell so you can stroke yourself and feel big time . . . unless i make a profit. Twat.
     
  22. ROFLMAO
     
  23. dog_accountant_540.jpg
     
  24. FYI, the price of SOXL has now rebounded to above where it was when I purchased the calls. Midpoint is currently at less than half of what I paid. Ask is barely above that halfway point. Theta decay doesn't even come close to explaining the price decline. Hence, the thread.
     
  25. As I previously mentioned, look at the vols.
    The answer is there somewhere.
    Come out, come out, wherever you are!
     
  26. Yeah, in the absence of dividend or interest rate influence, volatility must be the answer. I don't have the ability to see that information, or at least I don't know where to look.

    It's no fun to take it in the shorts on the way down without even a reacharound on the way back up.

    Is this pricing behavior perhaps amplified because the calls are way OTM?
     
  27. Since you’re an engineer, just do a simple perturbation-based explanation :)
    Time: -15 cents
    Spot: 45 cents
    IVol: -150 cents
    Which matches the prediction by Greeks:
    10 days of decay times 9/365 = -20 cents
    2.06 dollars in sport times 0.2 = .4
    46-57 vols times .13 = -1.44
     
  28. Like I said, I don't have the volatility data at my fingertips, but it's hard for me to imagine a significant volatility drop on a price drop. (I had to change brokers and I am not able to access the same level of data I used to. I'm working on that.)
     
  29. If anything, price behavior of far OTM calls will be muted since they are low delta. With no change in rate and dividend and knowing the amount of time that elapsed and underlying price change, the only thing left is volatility. Brokers provide that info. There are loads of option calculators available on the net as well.
     
  30. Sure, I can use underlying + option price information, days to expiry, etc. and back out estimates for initial and current volatility. I remain puzzled that volatility dropped when price dropped, and not an insignificant amount.
     
  31. You bought vol when it was bid up, partly because of the recent 20+% drop in spot. After that, the stock did not realize much and people got rid of it. This type of stuff happens.
     
  32. Yeah, that makes sense. Maybe selling OTM puts would have been a little smarter. I wouldn't have screamed about assignment.
     
  33. OK, splain this one to me Ricky. It's after hours on IBKR and I'm hitting the bid to sell some of an illiquid stock. I click and the bid disappears. I cancel and the bid reappears. I hit it again and the bid is gone. Is this some sort of HFT speed advantage over me or is there something else? Spoofing?
     
  34. That's God telling you it's time for a beer.
     
  35. I assume you are talking to me? :) it is HFT playing games.

    PS. @jimmyjazz is totally right
     
  36. I don't drink anymore so could I just have my order filled instead of my glass???

    :confused: :D
     
  37. Sure, but can I have your beer?
     
  38. LOL . . . SOXL is up 6% from the point where I purchased these calls and I'm still a bit underwater. I'm gonna get vanity plates that read "IH8VOL".
     
  39. Took off half the calls @ $2.85 for a negligible profit. I'll watch the rest. (Watch it drop like a rock now.)
     
  40. %%
    Several other thing JJ ; sure Tek stocks can be real strong, NOV-APR, not a prediction.I clicked on some of those calls, none are very liquid compared to a liquid leader like NVDA; but even that strong liquid leader[NVDA] has dropped below 50 dma. QQQ hitting new highs, hello?? SMH is looking up trendy on 1 year chart, but still below 50dma, market makers watch that also.Could work well if you have enough time...:caution::cool:
     
  41. You ready to eat crow? How about you, themickey, you ready to feed me some beans?

    Jackasses. It's the worst aspect of this place. Suffice it to say I made the right call and you genii fucked it up. LOL.
     
  42. ROFLMAO IT did go down to 125 first..did you forget that???... LOL and may very well head back on down after this rally. So don't count your chickens yet Whipper Snapper. LOL
     
  43. It's not an investment, dipshit. Furthermore, it never broke below $130.50 after your premature egloatation, so not only is foresight not your bag, neither is the truth. (They have pills for the premature "issue".)
     
  44. you are a cranky whipper snapper!
     
  45. Maybe, but at least I'm not a liar, nor am I an overconfident lousy trader.
     
  46. ROFLMAO.......
     
  47. Merry Christmas
     
  48. Liar. Or can you just not interpret a chart? Come on man, own it. Doesn't bode well for a "trader", but at least own it.

    You and your toadie were the ones gloating over my "bad call", so you can bet you're going to eat it now. Reap what you sow.

    Nice edit, by the way.
     
  49. If the trade worked out well for you congrats. I looked back at the chart and yes the drop to 125 was before my post. It did drop 5 or 6 dollars on you after my post ....did you hold thru that?

    Anyway Merry Christmas and again congrats! ROFL
     
  50. I held through that drop and sold half my position for a tiny profit a few days ago. I'm still sitting on the rest. My outlook has changed, not so much on the underlying but because I got clobbered on the option price via volatility. What I thought was a decent profit opportunity is now mostly defensive. I may dump the rest soon. Lesson learned.
     
  51. Thick as two short planks
     
  52. uh oh
     
  53. After a hit to P&L, I often suffer from breakevenitis and given the chance to get out unscathed, I get out of Dodge. I think that it has something to do with the market knowing more than I do about the position. ;)
     
  54. Trading options IS trading Volatility
     
  55. As this thread shows. After doubling down when the option price failed to climb with a significant early jump in the underlying, I am now at a significant profit and I am out. I am going to spend some time watching the manner in which IV/HV respond to price and get a better handle on this. I can trade the underlying OK, but clearly did not properly substitute OTM calls for the underlying in this instance.