Thank you all for your responses. Now it feels ok to be able to make some money. I will buy few more contracts and will keep my fingers crossed. Hope the market makers do not play some game in the meanwhile. $TSLA to $1000.
2 more questions...
1. What affects the option bid/ask prices the most? Is this the longer term IV or the IV right now?
2. Is there any site that shows a chart of option bid/ask prices over time similar to the stock charts?
1) Multivariate quadratic algebraic formulas. I have no idea what the exact computational model looks like, but I’d love to get my head and computer around it. I’m guessing it includes weighted historical 10-30 day stock prices (IV), variance of those SP, time decay to expiration, distance of strike price from current SP, put/call ratio or some other investor sentiment, phase of the moon, etc. to;dr
It’s complicated man. From what I’ve gathered from others, IV is continuously calculated and updated from historical data (last 10, 20, 30 days SP variations). Therefore, during a transition from a relatively stable SP, like we saw for the past 3 months, to this week’s crazy run, the calculated IV is actually lower than it should be. current IV, say from the last 5 days, is higher because those older, more stable prices aren’t included. For this reason, it’s a good time to be buying calls (lower IV) because future IV will be higher with 100% mathematical certainty. Higher IV means higher options prices and lower IV means lower prices if the SP is constant. Conversely, after a large SP change as stability returns, the IV remains higher for a few days/weeks until the peak/trough has been removed from the calculated IV. Therefore, selling calls or puts during this timeframe yields larger premiums. Of course, the absolute best time for buying calls was right before the S&P announcement (IV was low and SP was stable), but it’s difficult to nearly impossible to predict SP or announcements with absolute certainty.
2). I use the nasdaq option chain website, though it’s clunky and difficult for me. Just pick an option, and you can see 5-day, 1-mo, 3-m, 1-yr graphs of what you missed.
I also use cnbc and maximum-pain for more insight.
Stock Option Max Pain
TSLA: Tesla Inc - Stock Price, Quote and News - CNBC
(TSLA) Call Put Options
I’m still working on my trading skills and plans, but so far I’ve been successfully buying shares or calls during the 9-11 am EST morning dip, or sometimes in the afternoon fade, especially late in the week, often Fridays. Monday’s tend to have significant price spikes and were better times to sell calls (not now). I don’t have access to real-time prices, and can only put in a limit bid, thereby guessing on the daily peak or trough. I usually bid outside the bid/ask spread hoping for the stock to come to my price rather than chasing it (though lately I’ve been chasing more for fear of missing out). I bought some calls today, paying more than I wanted, but the SP just kept melting up. I was planning to wait until Friday to buy (expecting a pullback), but FOMO took over. I still have some cash for another buy on Friday if that dip returns. Then I’m done, just watching my options like a hawk ready to sell to close if things go south (which I certainly don’t expect until after December 25th).