Apparently, a 50.00 Dec put increases in value much more than a 50.00 Feb put. Is this because the December?

Question

put is closer to the expiration date?

So is it that the options are calling for you to be risky, giving yourself less time to get in and get out?

Is there any advantage to buying near the money put options that are several months out? Time would be good...

Answer 1

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It depends. You are comparing an option expiring in one week to an option expiring more than two months from now.

If the stirke price is in the money, the option expiring in one week will have a much higher delta than the option expiring later. A higher delta means that a change in the price of the underlying will cause a bigger dollar change in the price of the option.

If the stirke price is out of the money, the option expiring in one week will have a much lower delta than the option expiring later. A lower delta means that a change in the price of the underlying will cause a smaller dollar change in the price of the option.

The option expiring in one week will have a much higher theta than the option expiring later. That means the passage of time, absent other changes, will decrease the price of the option more quickly.

The option expiring in one week will have a much lower vega than the option expiring later. That means that a change in implied volatility will have a much smaller impact on the price of the option.

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It depends on your trade objective. Since I tend to try to make money through theta and vega I usually prefer to sell nearer term options and buy later term option.

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Yes, such as a higher vega.

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N.B. In discussing "the greeks" (delta, theta, vega) in this response I am using "higher" to mean further from zero and lower to mean nearer to zero. Thus I would call 0.3 "lower" than -0.6.

Answer 2

Actually, the closer you get to the expiration of an option, the less in value it becomes. If this is occuring with an option you currently have, I think you need to reevaluate the fundamentals of the company you have the option with.
For example:
You have a Dec XYZ put @50. The company reported earnings and had a massive negative surprise and their statements show that they lost 12 Billion on subprime exposure. So, the market price dropped like a rock. Now, the closer to an expiration date the optrion gets the lower the value...so this option, while it is increasing in value now, is likely because of the increased volume to buy it. Cause no one can buy these options so soon other, and so would have to pay for the Feb option, which is more costly. Why would you want something that expired that late when you want to exercise it soon.
So I am thinking this is related to an increase in activity brought on by some recent information that was made public. The general rule of thumb is that the closer an option gets to exp., the more it loses in value.
The biggest advantage to the option is the time value of the option...so as that decreases, so too does its value as its profit potential is decreasing with each passing day.

Answer 3

It all depends upon your trading strategy.

Assuming you are just doing straight buying of puts or calls:

The advantage (or disadvantage) of buying front month options is that they have higher deltas...giving you more leverage.

The advantage of buying several months out is that you have less Theta (time decay) to worry about.

So you do have much more leverage on the December options. If you are right about the direction of the underlying than percentage-wise you will make more than you would on the further out options at the same strike price. It also works against you the same way if you are wrong about the direction of the underlying. December option loses more money percentage-wise than the back month options.

Answer 4

yes.

The more time between the present moment and the expiration date, the less effect current changes in price have on the put and the more time there is for the market to correct any short term blips. Conversely, if there is little or no time between the present moment and the expiration, the put has to react to changes in price immediately.

Its like buying insurance for a hurricane. You can buy a reasonable policy now to cover you in 2008. But if you wait until the storm is 300 miles away and headed for your house, the price will have risen to a price almost the same as the price for your house.

An immediate risk requires an immediate payment to offset it. A distant risk requires a much lower payment to mitigate it.