Looks like you got gangbanged by the greeks as if you were a 19 year old sorority student in a frat party. l suggest you get a full understanding on the Greeks, options pricing etc.
I meant nonlinearity not "no linearity". Now @guru can rest well. Good night my friend and stay safe.
If I interpreted what he supposedly did,it wasn't the Greeks that got him.It was the bid offer spread on the option on a fast moving stock. Most newbies are clueless to the impact of transactions costs on options..Im guessing he got nailed on bid offer spread as badly as his delta hit.
Buying options provide leverage at a cost. So first question to ask: Are you consistently profitable trading stocks and ETFs without using leverage? If the answer to that question is no, then adding leverage and paying a cost for that leverage will not help your profitability. If the answer to that question is yes, then read the other responses.
Welcome to ET. You lost 18% probably because: 1. You bought at ask and sold at bid? ~ 10% spread. 2. The leverage nature of options, when the stock lost ~ 5%, your ITM (Delta ~.6) lost ~ 10%. For us newbies, options lesson 101: Always trade with limit order, never market. All things considered, losing 18% on a trade is not a disaster. Could be worse, it could expire worthless. More than half my long options expired worthless. Good luck.
I would think long and hard about newbies placing limit orders vs market..especially if they are short gamma,which the OP wasn't.. For a newbie,a limit order MAY save a couple of pennies..But when a newbie is in a bad trade ,they are a like a deer caught in the headlights.Better to smack the first bid and GTFO as opposed to splitting markets, hoping to be filled with limit orders... Why screw around for pennies when you are a newbie??
This is a really good post.. I get the appeal of the built in stop of options,but if you cant trade the stock,you cant trade the option. For a newbie,the hidden costs of long options is likely too much to overcome..
Thank you for your comment. It is a fair question. Some of us don't trade SPY or QQQ or DIA with bid/ask difference of a few pennies. I don't think OP was trading index option. I made a trade on Friday, an option with a bid of $5.00 and an ask of $8.00. If I bought at ask and then sold immediately at bid I lost $3.00 a share. You simply cannot make money buying at ask and selling at bid, but if your opinion is correct, much easier to make money if you can get mid/theoretical when buy and sell.
Unfortunately @taowave is correct. the price of the move is usually priced in so it is very difficult to come out ahead going long, especially in high volume index options.