≡ Menu

Why Stock Moved Right But Option Lost Money

Fill this Form to Get 5 Day Free Course on Options And Immediately Get an email to Download eBook on Option Greeks. You can also get an Equity Intraday Strategy for FREE

=====The Article=====

This is a very common question befalling option buyers since ages. After paying the huge premium and the stock moving in the direction of the option bought if the option buyer sees a loss in options bought they get stressed and start thinking what wrong they did.

This is especially worrisome for novice options traders who just came into the options business. They get worried about seeing a huge decline in option premium if the stock stays in the same place or move slowly in the direction of the option bought. So they ask themselves or their mentors/brokers or keep searching online – why my option declined in price when the stock moved in my option buy direction?

Well, they did nothing wrong except they paid for time value and other things that I will discuss here.

Here is an explanation:

Assuming the stock is at 100 and at the money call option at 100 is bought for 5, then the option buyer will make money only if the stock crosses 105 before expiry. Even if the stock finishes at 104 the option buyer of strike 100 will lose money because he bought the option at strike 100 and paid 5 as premium. So the break-even point is 100+5 = 105. Anything above 105 is profit for the option buyer.

Now coming to the real world live trading. When you buy an option you are racing against time. In Option Greeks its known as Theta. Decay of theta is a big concern for option buyers.

Assuming your view is positive for a stock and your buy an ATM call option paying a hefty premium. The premium you paid for is your maximum risk. Everything is fine and the stock moves up slowly. You will be happy that the stock is going in your direction.

You login to your account happily and to your shock to see your option contracts losing value, means its premium is lower than what you paid for.

This can be frustrating.

Three reasons for this:

One, the stock did not move far enough for you to make a profit yet.
Two, change in implied volatility. If it has gone from a high level of volatility to a lower level the option will lose value.
Three, too much time taken for the move to come.

Please note that option contracts are multidimensional. This is not a simple trade as stock buying and holding. When you buy an option, you buy a lot of stocks by paying a small premium but you also pay for a few things that are not in your control. These are option Greeks. If you do not understand option geeks you can download an Option Greek file from here.

So remember in an option contract, you have this multidimensional issue. You have to not only predict the directional move of where the stock is going, but also how implied volatility and how time decay may impact the position in future. So sometimes even if you get the direction right you may lose money in buying option.

So whats the way out?

Way out is to keep a target to exit. Target should be both for taking loss as well as taking the profits. If you take out the profit and then option moves to make a very high premium you should not repent your decision to exit early. You traded with a plan and you exited.

Trading without a plan is sure-shot way to losing millions in stock markets. You can do my conservative option course and learn ways to set up trades for monthly income.

What you should do now

1. If you have still not subscribed for my free 5 days course you can do by filling the form above. You will learn a lot about option trading.

2. If you are a new option trader, not much experienced and are making losses you can do my paid course. I recommend Nifty Conservative Option Course for beginners because it is easy to understand and easy to trade. Even a 18 year old young trader or a housewife can learn it and start trading from next day. It will help you to earn consistent monthly income without any software or speculation or stress or big risk. You will learn proper hedging strategies that works in any market condition.

3. If you are banknifty weekly options trader you can do my Bank Nifty Weekly Options & Futures Strategy Course. You will learn future and option hedging strategies that works in volatile market condition.

NOTE: Here is one more help. You can open a trading account in UPSTOX and send me a WhatsApp message on 9051143004. I will send you a FREE Equity Intraday Strategy that you can start trading and make approx 200 a day. You need 5000 to start trading this strategy.

CLICK HERE AND REGISTER IMMEDIATELY TO OPEN AN ACCOUNT IN UPSTOX. If you do not register immediately you will not be mapped under me which is very important to get the free strategy.

UPSTOX is a low cost broker where buying and selling of stocks is FREE.


What Traders Say About My Course

Course fees: Click here to know the course fees.

Here is complete process of my course

1. Once you pay I will send you the course materials for studying to your email.
2. You read and ask me questions via phone/whatsapp/email to clear doubts.
3. Then you start paper trading and still can ask me questions.
4. After about one month you can start trading.
5. Since doubts can come anytime the support will be there for one year.

Within one month you can start trading on your own. No need to depend on anyone once you are on your own.

If you have any question you can contact me.

You can read about me here and my trading mistakes here.

TheOptionCourse.com Copyright @ All Rights Reserved
Dilip Shaw, Founder

Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website. Please note that I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other form of social media. I strictly adhere to laws of my country. I only offer education on finance, investments on stock markets in the best possible way as much as I can through this website. Still, you must consult an authorized advisor or do thorough research before investing in any stock or derivative before trading any strategy given in this website. I am not responsible for any investment decision you take after reading any article given in this website. Knowledge is the only way to get success in stock markets. I try my best to give stock market investing and trading knowledge through the articles posted in this website. Thanks for visiting my website.

Adjustment To Short Call Option Gone Wrong

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 0 comments… add one }

Leave a Comment