Murray,
Welcome to our quiet little thread here. There are a number of tools one can use to aid in predicting option prices if you have a good feel for where the underlying is going. There is always an element of uncertainty because we can never predict the market sentiment and options pricing always reflects both a theoretical dependence on underlying price and past history PLUS an element of what the market is doing at the moment.
I use an option strategy analyzer that is Excel based and free to download from the following link
hoadley.net
You can also access a number of online calculators there. There are a number of similar tools, some imbedded in commercial software packages. This sort of tool helps refine estimates of future price, but simpler approximations may be sufficient based on the information from a good quote source like this one
pcquote.com
If you click on "greeks" in the left menu you will get sufficient data to estimate the option price movement that should theoretically accompany a movement in QQQ. If you already know how to do this, you are probably ready to take a deeper look at the analysis tool. If you don't know how to do this, check the quote page so you know where to find Implied Volatility, delta, and theta, and just ask us to follow up on this to tell you how to use this data.
For tomorrow, delta 60% is telling us that if QQQ drops another $0.50 in price, the MAR25 puts should drop about $0.30. Theta is telling us these options will lose a bit more than $0.01 in time value, which is nothing much to worry about since the price increment is $0.05. The $0.10 bid ask spread suggests you might have to accept $0.05 slippage to be sure you get filled (I've been doing really well getting filled in the middle lately, so you might want to hold out for the full theoretical move.)
As a sanity check, look at the current price on the MAR26 puts. For front month options a $1 drop in QQQ should move the price of the MAR25 to the current price of the MAR26, less any loss to time decay (theta), which is too small to worry about. If QQQ price moves only $0.50 you can expect a move of a bit less than half the distance. A bit less than half of the $0.65 price difference is the $0.30 estimated above, so there is agreement here.
If QQQ really does start to fall, and sentiment is fear of further downside then puts will become even more expensive and the move could be a bit larger than estimated. If the sentiment is that things are getting too oversold and buyers start showing up in force to create a sharp reversal, the puts might move less than the estimated price based on the QQQ bottom. As liquid as these things are, I'm reasonably confident the $0.30 per $0.50 ratio will be realized. Beyond $0.50 on the QQQ will start to accelerate the put prices. |
