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Earlier today, I purchased 2 put options on GME. The opening price was around $295. The price dropped $30 in 45 minutes to below $265. Why am I not making any money? I looked at all of the put option contract prices and all of them say a loss of 10% today. Please explain.

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  • what's the expiry date on the two puts ?
    – Fattie
    Feb 1, 2021 at 15:22
  • March 5th is the expire
    – Zed
    Feb 1, 2021 at 15:26
  • 2
    What strike are the puts?
    – Hart CO
    Feb 1, 2021 at 15:35

1 Answer 1

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I don't know what they are right now because GME is halted but in the past week, bid/ask spreads have been wide for GME options. That's a small reason why your put may not be increasing as fast as you'd like.

The major reason is that options gain in value when implied volatility increases and they lose value when implied volatility decreases. So if there's a large underlying price move in your put's favor (GME drops 30 points) and the put loses money, it's because there was a sharp contraction in implied volatility.

However, given that GME is down $111 when halted, your should be rewarded for your cohones (buying GME options in this environment) if it doesn't rise sharply when trading resumes.

Given the lag in option spreads becoming sane, you can lock in the gain by buying shares if you have the cash to do so.

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  • I think the 3rd and 4th lines might not be relevant given we don't know strikes/premium paid. Every drop in price decreases IV significantly since everyone seems to be expecting sharp drops for GME, so think 2nd line is the primary cause.
    – Hart CO
    Feb 1, 2021 at 15:45
  • @HartCO All else being equal, puts gain value when the underlying price drops, regardless of strike or cost. Since IV is the next largest contributor to price, it's the most reasonable explanation for a put dropping when the underlier drops.
    – D Stanley
    Feb 1, 2021 at 15:49
  • You're correct. He could have purchased puts when GME was lower (puts were more expensive) and coupled with a huge IV contraction, the gain might be small today and he's net negative. Feb 1, 2021 at 15:52

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