Linda -- re:EK options
No expert, but a couple of thoughts...
When EK closed last night, the bid on the put was 1-1/2, now EK is down almost 11 points but the put is only bid at 4-3/4. It's in the money now, with a strike of 75, while the stock is at 72-11/16. It seems like the entire (large) premium is being evaporated today, all in this one day, though it's a November put and has a month to run.
Sheesh, 3x in one day and you're complaining? <ggggg> Seriously, this is a value issue where 1.5 may have been overvalued and 4.75 may be undervalued. This flows into the fundamental question:
Is there any way to predict anything about this phenomenon?
Yes, but it's rocket science to most of us. Of course the objective is predicting volatility, but opinions vary as to the use of historical, statistical and implied volatility as well as associated "skew." Results are then applied to a price model -- such as Black-Scholes -- to calculate theoretical option prices. (Depite media hype, Black-Scholes is the best thing going IMO.) It isn't practical to cover the "Greeks" in this passage, although you may wish to research Delta, Gamma, Theta, Vega, Lambda and Rho; these open some doors to... er, more questions... but may assist in expressing the relationship b/t underlying stock, volatility, time, risk-free interest rates, etc.
You may also find probability calculator programs helpful, although these are intended for predicting potential profit based on statistical stock price calculations.
As you can see, there's no clear or universal answer. So, many people simply follow FA/TA principles, set stops and lock profits/cut losses based on preference or behavioral stuff.
*Gasp* Hope this helps.
Alan |
