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a trade on ICPT that totally makes no sense to me.....
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Created: by mdsvtr Attachments:2

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a trade on ICPT that totally makes no sense to me.....

  #1 (permalink)
Membership Temporarily Revoked
Memphis,TN
 
Futures Experience: Advanced
Platform: ThinkorSwim,FXCM, Ensign Software
Broker/Data: ThinkorSwim, FXCM
Favorite Futures: Futures, Forex, Options
 
mdsvtr's Avatar
 
Posts: 232 since Sep 2010
Thanks: 853 given, 28 received

a trade on ICPT that totally makes no sense to me.....

I am having some trouble understanding the way the price of certain strikes reacted to the drop in price on ticker ICPT back from March 23, 2014 to April 18,2014 . This is a Bear Call spread trade ( credit )

Here's how the scenario played out ( I have attached 2 charts, that show each of the 4 weeks strikes, and how they played out ),.....

On 3-23-2014 the 610/620 Bear call spread gave me a Net credit of .80 cents
One week later ( on 3-30-2014 ), the stock had dropped in price by $19. Looking at the 610 call on 3-30 , it would have cost $2.45 to buy it back. What I'm trying to understand, is why would it cost so much to buy it back, after such a big drop in the stock?
The 530, 540, 550 and 560 strikes didn't move at all either

On April 6 , and with 11 days to go till expiration, the stock dropped another $27 dollars in price, BUT.... the 610 call that we sold ( when we put on the trade ) didn't even budge again.... it stayed at $2.45 .
But look at the 530 and 540 strikes, Both of this strikes " Finally " dropped in half, and again, the 550 and 560 strikes still didn't budge

on April 12 , the stock had 5 days till expiration and dropped in price another $24, and Finally, the 610 strike dropped in price , and it dropped big time 9 from $2.45 to .02 cents ) , BUT...... the 530 strike went back up in price ( it basically doubled in price, from $2.65 to $4.90 ), The 540 strike didn't move ( it stayed at $2.00 ), the 550 and 560 strikes STILL didn't move ( both stayed at $4.90 ) , and the 610 strike remained unchanged at .02 cents )

on April 18 ( Expiration Day ), everything remained unchanged in price , from the previous week.

What I don't understand, is why the 610 strike would eventually go from $4.90 to .02 , but the 550 and 560 strikes never moved.
there was a $77 drop in the price in the stock, and yet the 550 and 560 didn't move, but the 610 strike did ( and the 610 was more OTM then both the 550 and 560 )

Thanks for fellow members help, I'm know I'm missing something, I just can't put my finger on what it is
Maybe there's a Greek I don't fully understand Or maybe there's something I can add to my option chains, that can help me to avoid making trades on these far OTM strikes , that have almost zero chance of moving, no matter how much in price that the stock itself moves

thanks much everyone - Michael

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  #3 (permalink)
Membership Temporarily Revoked
Memphis,TN
 
Futures Experience: Advanced
Platform: ThinkorSwim,FXCM, Ensign Software
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mdsvtr's Avatar
 
Posts: 232 since Sep 2010
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I forgot to add the 2 chrts ( attachments )


Here they both are......

Attached Thumbnails
a trade on ICPT that totally makes no sense to me.....-icpt-bear-call-spread-1.png   a trade on ICPT that totally makes no sense to me.....-icpt-bear-call-spread-2.png  
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  #4 (permalink)
1.Fibs 2.??? 3.Profit
Puerto Rico
 
Futures Experience: Intermediate
Platform: thinkorswim
Broker/Data: TD Ameritrade
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rmejia's Avatar
 
Posts: 384 since Oct 2010
Thanks: 3,597 given, 421 received

Those options have 0 volume and the open interest is 3 on the 610. The Bid shows up as $0. There's no market for those options, the prices will not be accurate the farther out of the money in no mans land. The prices displayed there are not real. They may get filled in papermoney but in live trading if you tried to place an order there thinkorswim might fix the price and give the real price.

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