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Memphis,TN
Posts: 232 since Sep 2010
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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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