Does the bid/ask price on an option spike as much for long term long positions as it does for the shorter term

Question

long positions? In other words, if I buy an option and the share price spikes on a given day, will my option position increase in as much value for a longer postion as it does for the shorter long position? I realize there is a time premium, but all things being equal, in as much as we are in the near early purchase of an option, do you make as much off the longer position as you do the shorter long option position?

Answer 1

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In general, assuming you are talking about options that are in-the-money following the spike, shorter term options will have a larger delta and, as a result, increase more.

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In general, no, as long as we are talking about in-the-money options.

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Once again, assuming you are talking about in-the-money options, you will usually make or lose money more quickly with shorter term options.

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On thing to remember is that anything that causes a spike in the price of a stock is also likely to have an impact on the implied volatility of the options on the stock. So, asking what will happen "all things being equal" may not be very meaningful since it is unlikely all things will be equal when the price spikes.

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You can download the Options Toolbox software from the CBOE at

http://www.cboe.com/LearnCenter/Software.aspx

and graph the changes in the prices of different options under different conditions to see the impact.