Hi Joe,
Very possible the options you bought were out of the money short expiration calls. Lets say the underlying is trading at 20$ with a high beta (beta = volatility). You buy OTM (out of the money) calls with a strike price of 25 dollars with less then one week till expiration, (lets say you bought Oct calls on October 12, with an Oct 19 expiration), premium is 1 dollar.
You did your homework, followed the trend properly and 3-4 days later, the stock rallys 2 points.
Lets look at the call you bought now. The stock is still OTM but closer to the strike price. However the time decay has worked against you. Now October 16/17, you only have 2 or 3 biz days left until the 3rd Friday of the month expiration (often known as triple witching when futures expire one the same date and all options expire the third Friday of the month you choose).
Now call buyers have to ask themselves, what is the likely hood, the stock will rally further, in the next 2 or 3 days, and what premium am I willing to sell it for. The stock may very well be at a heavy resistance at this level, and with only two days left 'till expiration, place a small premium of lets say .75 cents on the price.
You sell your options, get .75 cents on the spread, (you have to hit a bid) and are down 25%.
Joe, why not join the class, and I will teach you how to you could have potentially raised the likely hood of turning that option call into a 25% gainer.
Send a note to netrader@mindspring.com....
Hope to see you there.
Sharck |
