With recent options trading in SOLF, a 2% move in the stock has represented about a 10% increase in the options. However, recently, I bought some Jan 35 Puts when the stock was about 35.80, with the options price at the time being 4.50 x 4.80. The next day, when the stock was down to about 34.60, more than a dollar from my entry, the puts were being offered for the same price! At one point, when the stock price was down to around 33.50, the stock was down around 7% while the put options had only gained about 9%! So my question is, what fundamentally changed from the close of the 26th to the open of the 27th that drastically changed the values of these options? Thanks, Matt
(1) ?..............it appears to be some type of volatility shift, against you unfortunately. Were there any major news releases on those days? If so, it's possible that traders were selling puts and calls, thereby pressuring volatility levels, because the news wasn't so bad. (2) Another explanation is that SOLF is trading more like a commodity instead of a stock. As the stock rockets higher, so do volatility levels. On price declines, traders aggressively sell puts and/or buy calls, thereby pressuring put values, to maintain a bullish bias in the stock expecting it to continue rocketing higher. In other words, nobody wants to be "short" the thing.
it also can't be helping much that that there's a 40 cent wide mkt at any given time on the atm options. that said, there does seem to be 25% more open intereest on the 30 strikes (and all the calls have 2x + the open int of the puts). this thing is traded pretty thin. my gut says that this thing is being traded by very very very few people. looks like the stock is hard to borrow, and boy what a run up in the last month or so! I don't think too many people want to be short puts on this thing following a $20 run up over the last month. i think its probably just very limited coverage, don't you think?
Yes I don't follow this stock - it is possible that if the stock was/is hard to borrow - that enough shorts covered during the drop - to make it easier to borrow the stock. This might lower put prices. That's some pretty high IV there. Lots of wiggle room there and in the B/A as well.
Thanks for the responses guys. I just find it hard to believe that IV could make up so much of the options price. I bought the option EOD when the price had been consolidating all day long. Over the course of the past 2 trading days, the stock is down over 2 dollars from my entry yet you can buy the puts cheaper than i did! Ah well, I still have a lot to learn. To the first two responses saying that maybe no one wanted to sell puts, wouldn't that increase the price? I would think if the sentiment is that the stock could go down, people selling calls would demand more money for the puts because of the risk. Also in the case that no one wants to be short the stock, aren't options derived on the stock price and not where people think it will go? You would think the minority that goes against the market sentiment on a stock direction would be rewarded for such risk.
Use the formula that calculates the option price and tap in different IV and see the results matches with what you see.
Through the use of ivolatility.com, it calculted that when I first purchased the options, the IV was around 150%, while it is now around 130%.