need advice on this

Yesterday just before the close (earnings were released after close) I bought a PANW straddle expiration 2 sept 2016:

Call 152.5 for 2.15 $
Put 132 for 1.65 $

Today the stock opened something like 8% lower.

My call is worthless and my put was just breakeven, even a little negative and then slightly positive.

How is that possible if a stock goes down 8%, I think that's a big move to let the put option move much more?

Sometimes I see options on stocks (with a 8% down or up move) that are several 100% or even 1000% up with that kind of move.

How come?

I'm tired of this, even if I have the direction and the magnitude of the move right I still lose money.

Options are really difficult to play.

Can someone explain me this phenomenon that I described above?

TIA

 

What maturity did you buy?

It's pretty obvious, the implied move was greater than 8%.

 

What expiration?

If making money in the options market were as easy as buying straddles prior to earnings everybody would be rich. The people who sold you the straddle knew as much as you did (or probably a lot more) about upcoming events. The easy explanation is that option pricing (implied volatility) was set to take into account exactly what motivated you to buy the straddle. Usually they win.

If you can come out even you will be lucky.

 

Expiration: 2 september 2016

 

I had a small loss, so in fact this is just gambling by doing this? Seems to me that straddles don"t work. It's based on pure luck. You can get a good move or you can lose everything.

 

From the numbers you posted, I'm guessing the underlier was at 142 when you bought. If so, that's a strangle you played.

With that strangle, your underlier has to move, at least, $10 + 2.15 + 1.65 before any green appears. And 8% of 142 is 11.36.

Your underlier just didn't gyrate enough. Since it went south after the ER, your IV probably had very little effect. If it went north, IV might have been more of a factor.

When I see some low hanging put fruit, and obviously done due diligence, I go directional. Lot cheaper, and way more profitable in the long run.

Cheers!

 

You are right, underlying was 143. And yes afterward looking at it, It's a strangle. I totally forgot about that. Do you think it would be more profitable if i bought a straddle at the money?

 

Yes, if you had bought an ATM straddle, your hurdle is the cost of the two options. Back test it, and you'll see how much profit there was.

 

The call option would have been worthless, the put option only moved a little bit more than 100% so i would have had a very small gain, not worth the effort i think.

To profit am i right that one side of the straddle has to move more than 100 %? Correct me if i'm wrong

 

• You obviously need plus 200% on one side for a straddle/strangle to break-even.
• And more to make a profit.