Paychex announced earnings last night and disappointed. The stock was down and crashed -$1.91 (-6% & change) My limit sell on March 20 calls last night was at $11.00. These calls closed today at $9.30. Delta was about 1. So change appears to have been all direction and no volatility?? October 30 calls closed today at $.40 bid. Optionfirst reported a change of -$1.25. I am guessing that is from last night close. So, seeing the this change, I am guessing the drop is prediminately IV collapse and not delta. To figure the amount attributable to each, wouldn't you just apply the delta percentage to the last night close and attribute the rest to IV. I am trying to look at long ITM options as a way to mirror a stock's performance, and from what based on what I am seeing, it is better to buy intrinsic value and sell time premium if you want to reduce IV risk. The good news is I made a lot of money on both trades, the bad news it is all nontaxable..because it is in a virtual account. Your thoughts? Thanks Tom
THe march 20's have virtually no vega and thus a very near 1.0 delta, therefore their price move was strictly intrinsic with the stocks move, they also didnt trade today. The Oct 30's prior to todays move had a FV which included a substanital amount of vega so they lost money as you stated in both IV and via delta. Selling intrinsic value gives you nothing but leverage over trading the stock.
>> My limit sell on March 20 calls last night was at $11.00. These calls closed today at $9.30. Delta was about 1. So change appears to have been all direction and no volatility?? << It's all direction. If delta was 1 yesterday and is 1 today then there was no extrinsic and volatility had no part in the price decrease. >> October 30 calls closed today at $.40 bid. Optionfirst reported a change of -$1.25. I am guessing that is from last night close. So, seeing the this change, I am guessing the drop is prediminately IV collapse and not delta. To figure the amount attributable to each, wouldn't you just apply the delta percentage to the last night close and attribute the rest to IV. << The drop was primarily due to delta change. To see the respective components, enter yesterday's data into your pricing model. Advance the date by one day and drop the price by $1.91. The diffence b/t that price and yesterday's quote will be the delta change (same IV). The remaining decrease will be the amount due to IV contraction. Or for a rough estimate, it's as you suggested: apply the delta percentage to the last night close and attribute the rest to IV.
Xflat..no, the march calls did not trade yesterday, I used the last bid price on Optonfirst. By the way, don't you mean buying intinsic value??. Perhaps there are some opportunities in volatility trading I need to research. Thank you both for your comments. Tom