I trade options. Whenever I buy puts or calls, I end up breaking even or losing, sometimes losing a HUGE amount of money even though price has gone my direction and time decay (theta) has been minimal.

Is this because of the implied volatility? If it is, can someone tell me what should I calculate to know if the implied volatility will drop so I can avoid the trade as 95% of the time, the imp volatility is dropping? Am I missing something?

  • 1
    It's impossible to provide an answer without some examples. At a minimum, you'd have to provide the stock symbol and the buy and sell dates of the option. That would allow allow a macro look at the average IV of the underlying. For a precise answer, you'd have to provide option details (put or call, strike, expiration) as well as cost of option and selling price as well as the stock's price when your traded the options. Give me some data and I'll show you how it's done. Nov 8, 2019 at 22:32
  • Thank you Bob for helping me as i was about to quit. I have 8+ experience in trading stocks, but new to options trading. will provide all that in 15 minutes. Thank you for helping me
    – jessica
    Nov 8, 2019 at 22:34
  • 1
    @jessica You'll want to edit that into the body of the question. On StackExchange sites, comments are considered disposable and are sometimes removed for various reasons.
    – glibdud
    Nov 8, 2019 at 23:48
  • Okay Gilbdud will do
    – jessica
    Nov 9, 2019 at 6:32
  • 1
    You can push edit to edit. Nov 9, 2019 at 14:37

4 Answers 4


With options, time is not on your side because they depreciate. They are a race against time. Investing is hard enough but making money with options is even harder. I only trade options a few times per year only to make an extra 3-5% alpha per year.

Options are priced so you only make money if the stock price moves MORE than the expected return. This means 2 things:

1) You won’t make money consistently unless your stock picks OUTPERFORM the expected return.

2) It’s really bad to buy options unless you have a proven strategy.

My father used to trade options in his IRA. 5 years ago he would lose 10% of his account in a year. I told him not to trade and he traded less. His losses dropped to 7% per year then 3% and now he doesn’t buy options and loses nothing. In fact, he is making money slow and steady like it should be.

  • me too i have loss after another. Thank you Yoshi and hope your dad is doing great now. take care
    – jessica
    Nov 9, 2019 at 6:35
  • 1) It's a race against time only if you're a buyer of short to medium duration options. High delta LEAPs have low theta and make a good substitute for equity. Selling option is a race with time in your favor. 2) If your option position has a positive expected return, you win on that side of the R/R. You don't have to OUTPERFORM the expected return to make money. Nov 9, 2019 at 13:01
  • nice Bob. :) Have you ever bought deep ITM leap options? I always assumed it’s just leverage, which I try to stay away from. Also, are you writing options? I’d really like to write options. Have tried verticals but I like to close positions early and the two sided spreads are a bit too much for me. If you have good risk management, I feel selling naked seems really ideal. Have any thoughts? Nov 9, 2019 at 13:27
  • I don't buy ITM LEAPs often. On occasion I have done so for the purpose of writing diagonal spreads (google: Poor Man's Covered Call). A LEAP is only leverage if you utilize leverage. If you just buy one ITM call LEAP as a substitute for the stock (google: Stock Replacement Strategy), if the IV is reasonable, you have almost the same profit potential and much less risk. Keep the uninvested amount in cash or an income bearing security. These days I only buy some OTM index LEAPs for hedging portfolio risk. Other than that, my long options are no more than 4-5 months out. Sep 20, 2020 at 20:52

What draws people to stocks in the first place is that it's not a zero sum game. Stocks grow when the economy grows. When someone buys a $900 iPhone, the profits add to the value of AAPL stock.

It's like a reverse casino. In a normal casino if you play the slots 10,000 times spending $10,000, you will gave gotten back an average of $9700. With the stock market you get back an average of $10,600.

But this only applies to simple holding of stock.

Once you get into derivatives, it actually is a zero sum game. For you to win, someone else must lose.

The problem is, you are playing against the smartest professionals in the world, and all the research and technology their money can buy. They have well-honed computer algorithms that, all due respect, know more about options trading than you. They are better connected to the trading floor, so they are much faster.

Why are they there? Why does it make sense to play this zero sum game? Because they are able to harvest profits from others who are not as good at the game. Mostly they are targeting other professional investors, but you find yourself in the crossfire.

There's a reason the options are priced as they are: they set the price. THEY set the price.

You are holding yourself out as smarter than them -- or luckier.

I would let go of that.

  • While it's true that derivatives are a zero sum game, your answer is a one size does not fit all answer. If I own a stock that is $90 and I have a target sale price of $100, I could sell a $100 covered call and just collect income until it reaches $100, assuming price does not collapse. I am not competing against the smartest professionals in the world or against the best research and technology that money can buy or against superior option knowledge. They have no edge over me. This also applies to selling puts to acquire stock at a lower price. Sep 20, 2020 at 20:45

When I read your initial question, my first guess was that this might be about buying options before earnings announcements and the losses due to implied volatility contraction after the EA.

My second guess was that this might be about how put premium inflates before a pending dividend. With the data that you posted in your comment, these were bad guesses since (1) there's no dividend on AMD and (2) you posted the Greeks so it's clear that you have more than a noob's understanding of options.

There are three variables in play here:

  • Time decay
  • AMD's price change
  • Change in implied volatility

Modeled, the expectation would be that there would be a loss of 20 cents of premium over 15 days. This is almost borne out by your stats. With a an actual theta of -0.103 (your number is high, perhaps because it was rounded up), you'd expect to get 20 cents of time decay which matches the modeling.

With an average delta of ~ 0.455 across the price range, with a price drop of 45 cents, you'd expect the put to appreciate by the same 20 cents so premium should be unchanged.

But because IV contracted by ~8% (the actual IV declined 4.1), the net effect was a premium decline to $3.70

Here's an online calculator that you can play with. Isolate one variable at a time to measure the effect of the change in premium:


The results of program that I use was pretty close to those of this calculator. Either way, the IV numbers should be in the vicinity of .53 and 49. The IV numbers that you provided appear way too high (72.9 and 63).

Hope this all makes sense.


Let's say shares are $80 today, and you buy call options with 12 months with a $100 strike price. You are betting that the shares will go above $100. The option price is based on the expectation that the shares will go above $100, and how far.

At this point, anything could happen. The shares might go down (you lose everything), they might remain the same (you lose everything), they might go up but not past $100 (you lose everything), they might go to $105 (you get $5 per option) or even $140 (you get $40 per option). This needs to happen within 12 months. The chance of going over $100 might be slim, which is why the options are cheap.

If the share price goes to $90 within 10 months, the chance that it exceeds $100 in the next 2 months is probably less now, the chance that it goes significantly over $100 in two months is a lot less, so the option lost much of its value. And if the shares go to $99 on the last day, the option has practically no value even though the shares went up almost 25% during the 12 months.

When you have options, time works against you. The only case where this doesn't happen is when you buy options that are deep in the money (say options with a $50 strike for the same $80 shares). Unless the shares drop close to or below $50, the change in the price of the options in dollars is about the same as the change in the share price. In percent, the change is obviously higher.

  • Regarding your $80 stock with 12 month $100 calls, your explanation holds water only at expiration which is 12 months away. You've ignored all the potential profitability in the early months, long before the stock even reaches $90. As for your last paragraph, it's incorrect. As the stock drops from $80 toward $50, the delta of the call decreases from almost 100 to 50+. That means that the call will lose less and less for each dollar that the stock drops. Theta will also increase as share price drops toward $50, increasing the amount of daily time decay, even more so for shorter term options. Nov 9, 2019 at 13:53

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