I bought $4.5 Call (1/15/21) on 4/27 for $ .17 the day before the split. Today the value of the options is $.09. The crude oil has increased since 4/28. Would anyone help to explain on this ?
1 Answer
Right now, the quote for your call is $0.08 x $0.09.
What was the bid/ask spread on the day that you bought the option? If it was wide, say $0.11 x $0.17 then you are overvaluing the price change by the spread width. The bid to bid drop was only 3 cents (part of your loss was due to a wide spread). A midpoint valuation would be a drop of 5-1/2 cents. Either way, not as glaring as comparing the ask to the bid.
Right now, the quote is $0.08 x $0.09. Let's assume that it was tight at $0.16 x $0.17 when you bought the option. What would account for a loss of 8 cents on a long dated option in only 3 days? The only answer for that is a sharp contraction in implied volatility.
answered Apr 30, 2020 at 17:12
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It was $ .16 x $ .17 and the price of USO increased for the past couple of days. You are correct that the quote is $ .08 x $ .09. The value of the options decreases while the stock value goes up.– TomCommented Apr 30, 2020 at 18:31
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Can anyone buy the $ 4.5 call options now ? I can only sell them. Is it the reason that the price drop if anyone can't buy this option ?– TomCommented Apr 30, 2020 at 18:33
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If the call's price decreases in a short period of time as share price increases (naturally not because of the reverse split) then implied volatility is the culprit. If the option is trading then it can be bought or sold. This should be obvious because other people are short the option and would be buying to close. Commented Apr 30, 2020 at 18:52
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The consolidated 30-day IV of USO on the afternoon of Apr 27 was around 141. The IV when OP posted the question was down to 89.52. Ding, ding, ding! And we have a winner. No further answers please. :->) Commented Apr 30, 2020 at 18:58