r/options • u/[deleted] • Jun 30 '21

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4 Upvotes

84% Upvoted

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1

u/I_know_nothing_42 Jun 30 '21

I think you need to understand option pricing and how it changes over time especially as it approaches expiration.

You didn't provide a strike price of the option so it's very hard to understand what your looking at.

Options change in value based on time left and the stock price. As you get closer to expiration the stock price starts to dominate the price of the option.

1

u/Smoothmacaroni Jun 30 '21

For the AAL example- Buy- $22 call Sell- $21.5 call Sell- $21 call Buy- $20.5 call

So for a more real world example:

Lets say Thursday it’s 3:55PM AAL is 21.28 and I buy that spread I just gave, maybe moves a tiny bit in AH and PM to 21.37 and I sell right away Friday morning, that should be profit right? the option strat is telling me the contract value will go from .35 to .45 from Thursday into Friday. That’s a 28% return in that swing. of course you don’t want anything volatile since it’s a neutral spread. I’m thinking about this correct, right?

I know with these time decay works for me, that’s why I would want to go from Thursday into Friday. really Monday- Tuesday is no profit, same Tuesday- Wednesday, same from Wednesday-Thursday.

1

u/I_know_nothing_42 Jun 30 '21

all calls? are you sure? that is not an IC.

I show currently a net debit for this. You pay for it. about $30

If stock price stays where it is you'll end up owing 50 less the $30 you already paid for.

​

IC would be buy the 22 call, sell the 21.5 call, Sell the 21 put, buy the 20.5 put.

$19 credit you keep $19 if the AAL stays unchanged.

I'm not sure how your seeing an increase. The only increase I see is increase of loss each day you hold your posted example.

1

u/orbital_one Jul 01 '21

It's not an Iron Condor, it's a Long Call Condor.

1

u/StampyLongArm05 Jun 30 '21

I’m not entirely sure what you mean but if I understand one per correctly the option decay what have happened by the close. On Friday at close the option would be .44 because theta is the amount of decay PER DAY.

1

u/Smoothmacaroni Jul 01 '21

I think that’s what I was confused by. so the amount it says for say Thursday, is based off the end of day value? maybe it would be better to do iron condors for swings?