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Is there any conceivable way in which an OTM option's value will decrease or (will not move, for that matter) as the underlying moves in a direction that gets the option closer to the money, aside from decay attributed to time value?

If so do you know of any examples in which this has ever happened?

  • Volatility collapse. An example would be after earnings. – Optionparty May 9 '16 at 19:26
  • what about for long term options of about a year which include 3 or 4 earning's dates, would they experience the same effect? – ak87 May 9 '16 at 19:30
  • just to a lesser extent, but yes – CQM May 10 '16 at 0:22
  • When demand is higher the risk gets higher, so the price goes higher. – Optionparty May 10 '16 at 2:07
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  1. Lack of liquidity in the options market (wide spreads)
  2. Decrease in volatility.
  3. Decrease in demand (or reduction of implied volatility)

Examples

  1. Look right after the open or a few seconds before the close.
  2. After the stock has made a big run up in price.
  3. After an earnings announcement.

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