A question about options trading

[ketostix]

Is anyone here knowledgable about options trading? I understand most of the concepts of options trading but when it comes to the practical of how to trade options I'm pretty confused.

Say I buy a put at $110 for $6.30. Then the put goes up to $7.95. Now I understand I made a $1.65= 7.95-6.30(not totally sure how this increase in price was calculated and I'll get to that later). But the underlying security is now at $103.20, and if I excersize the put 110-103.20=$6.80 with a $.50 increase (6.80-6.30) not $7.95 with a $1.65 increase (7.95-6.30). Apparently if the intrinsic value only increased by .50 to 6.80 then the time value most have increased by a much larger $1.15 despite the put aging a day. I didn't realize the time value would go up on a put if the security drops in price, I thought just the intrinsic value would. I have no idea how to figure what the time value would change to as the underlying security's price changes. Also it appears it would be much more profitable to offset the put than it would be to excercise it because I gain 1.15 of time value extra buy offsetting that I wouldn't get by exercising the put, right?

I have more questions about options but I'll leave it at this for now. Basically I can't make any sense of the numbers on the option train or how a change in the underlying security price will affect the option's value.

 

[ketostix]

With all the guys on here interested in finance no one knows anything about options trading or what? Options trading is where big money can be made and it's not the riskiest trading.

 

[Gaucho]

I don't really get your question, description of what you are trying to do.

There are plenty of books out there on options and strategies (which are best described with a payoff diagram).

Movement in the price of your option based on the underlying is measured through Delta.

Options are probably the hardest vehicle to make great money out of. It is the most strategic and can be used to make money fairly risk free in certain environments (such as low volatility sideways markets). Many intraday/swing traders will have options strategies running on the side, other than that, most top options traders are simply MMs these days.

 

[ketostix]

I don't really get your question, description of what you are trying to do.

I guess what I was saying is when I looked at the option chain the price movement for the options whether puts or calls seemed to change without rhyme or reason. For example, the underlying went down but some of the puts went down too (I'd expect them to all go up), and some of the calls went up (I'd expect them to all go down).

There are plenty of books out there on options and strategies (which are best described with a payoff diagram).

Yeah I should probably get a book. There's a book for everything but I thought I'd try asking interactive questions here.

Movement in the price of your option based on the underlying is measured through Delta.

OK this explains why a $1 change in the underlying doesn't equal exactly a $1 change in the option price, but shouldn't all put options move the same amount (delta) in the same direction and all the calls move the same amount (delta) in the same direction?

Options are probably the hardest vehicle to make great money out of.

If they are the hardest then what would you list as being easier vehicles to make great money?

It is the most strategic and can be used to make money fairly risk free in certain environments (such as low volatility sideways markets). Many intraday/swing traders will have options strategies running on the side, other than that, most top options traders are simply MMs these days.

By MM you mean the Market Makers working at the options exchange right? It doesn't sound like you believe options are good way to make money for investors, right?

Thanks for your reply. I can tell you are knowledge about markets.

 

[ketostix]

It seems like you can make money with options. In my example I bought a put for $6.30 and it's now worth $10.59 after only 2 days of trading. That means I paid $630 for each unit and it's now worth $1,059, so I made $429 or 68.1% profit for every $630 invested after just 2 days. And some of the put options have went up even more in this bear market. It seems like it'd be hard to get a 68% return in 2 days with a small investment and limited risk elsewhere.