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Options value question
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Created: by linker33 Attachments:3

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Options value question

  #1 (permalink)
Trading Apprentice
Boise, ID / USA
 
Futures Experience: Beginner
Platform: ThinkorSwim
Favorite Futures: Options
 
Posts: 9 since Apr 2015
Thanks: 3 given, 1 received

Options value question

So I just started learning about options, and have been working with a paper money account on ThinkorSwim.

Seeing if someone could explain to me why, surprise... my options aren't worth what I am calculating they should be.

I attached a screenshot of the trade, which is on BBRY. The trade was a credit put spread. Stock price @ $10.27, bought the 9 strike @ (.05), sold the $10.50 strike .54. Should be an overall credit, and max profit of $.49.

From how I read the below trade, it seems the sold put is generating a cost (enclosed in brackets), and the purchased put generating positive. Shouldn't it be the other way around?


Below is a spreadsheet showing what I calculated the option to be worth for max profit/loss, and what it should be worth currently at a stock price of $10.16

Long Put Strike = cost of premium paid (calculated to be -.05)
Short Put value = Current stock price - Short Put Strike + Premium received. (calculated to be .15)

(Attached screenshot of spreadsheet)

First question is why the current value shows as a negative, and secondly why my profit shows as $1.50. Shouldn't my current profit be the same as the current market value (but not negative).

Lastly, why do my spreadsheet values not accurately reflect the options value.

Attached Thumbnails
Options value question-bbry-options-price.png   Options value question-bbry-spreadsheet.png   Options value question-bbrytrade.png  

Last edited by linker33; May 1st, 2015 at 12:52 AM.
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  #2 (permalink)
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  #3 (permalink)
Elite Member
New York, NY
 
Futures Experience: Advanced
Platform: OptionVue
Broker/Data: IB
Favorite Futures: RUT, SPX options
 
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Posts: 157 since Apr 2010
Thanks: 64 given, 144 received


When you sell a credit spread you generate positive cash flow from the trade however there is also risk generated by being short a spread that could go to its full value. Your broker will require a deposit that is above the value of your credit to cover the that risk. If your spreadsheet option prices are different from the ones your broker is showing then you are likely using a different volatility in your spreadsheet than the one your broker is using.

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  #4 (permalink)
Trading Apprentice
Boise, ID / USA
 
Futures Experience: Beginner
Platform: ThinkorSwim
Favorite Futures: Options
 
Posts: 9 since Apr 2015
Thanks: 3 given, 1 received

Thanks for the reply. That did help to clarify a bit.

I think I realized my error in thinking, regarding the options current value...

I was calculating the options current value as if the expiration date were today.

Current stock price - Short put strike + Premium Received - Premium paid ect...

While this might be a possible calculation at expiration, the current options P/L is just the difference
between the options value at purchase and the current market value of the option if you were to buy or sell to close.

Just had to stare at the numbers for a bit before it made sense...

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