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Options Calendar Position Losing Money – What’s Happening

Today I want to share with you the concept of why you’re losing money on your option trade, or maybe making money just some things perhaps are working unexpectedly.

That’s what I want to share with you today. If you’re looking at your position and wondering why I am losing money on this trade.

Shouldn’t it be profitable?

Or why am I making money and in that case that’s great?

What’s happening with your trade that’s unexpected?

Today is November 21st, and you can see we have a downward move in the market – about nine points or so.

You could see we were at all-time highs. Then pulled back, so it’s pulling back a little bit. And I’ll show you an example of what’s going on with one of my positions right now.

This is diagonal, and with a diagonal, you can see it’s a bullish position. And if you look at the market, we are down eight points, almost nine points.

What in the world is going on because I’m profitable today $67? If you take a look at this position right here, it’s profitable $67 today even though we’re down quite a lot.

When you think about it, we’re actually down quite a lot, and this curve right here shows that I should be making money as stocks go up. But since we pulled back, I should be losing money.

And in this case, I’m making money. So what’s going on what’s happened? You can see it’s fluctuating between 41, 67, and sometimes it goes up to 90.

Sometimes it goes up to a little bit higher. Sometimes a little lower. But in either case, for a 9-point move that’s down this position holding very steady and still positive.

Usually, what happens is most people don’t worry about it in this case. That’s because they say my position is profitable. What do I have to worry about it?

People usually brush that off.

The issue I’ve seen before is when people see these positions, and they’re negative. It should be going up, I should be making money, but I’m not.

And the big problem with that is it’s behaving in a way you don’t expect. And that’s usually because you’re not understanding or how the puzzle pieces fit together or you do not see one side of the picture.

That’s all it means. It’s just the position is behaving a little wacky. 

And that happens because this position is affected by three main things. 

Delta, Theta and Vega

Number one is this Delta right here. We’ve got a Theta and a Vega.

Remember, Gamma is part of Delta. It is the rate of change of the Delta. Ultimately you have a couple of main things which is price, time, and then you have the volatilities.

Price is the big thing most people pay attention to. They pay attention to price because when they look at the price, they think stock prices are down, so I probably should be losing money.

This is what everything is being talked about. Usually, it’s the price. And that’s what people look at. And then the second thing they look at is the Theta.

You might be up because of the Theta. But they don’t look at really the Vega they exclude it. And this is where I want you to start looking at it in a bigger picture form.

Which one is the one that’s going to make you the most money if it goes up or down?

Depending on if it goes in your favor depending on your position, the biggest Greek (whether it’s positive or negative, think of absolute numbers), here is the Vega. So the Vega is doing the most work for you in this case.

Theta is second, and the price is third. When you look at the ratio and the rate of this, Vega is two and a half times larger than the Theta. Yes, Theta is helping out probably a little bit today.

Delta, as you can see, we’re down nine points, and this position was still profitable. That should be like a $90 loss or so on the Delta. We have a little bit of a positive Theta, and we have a positive Vega.

In this position, from experience I have of talking to people, a lot of people just miss out on the Vega part. And this is what behaves in a weird way that is not as common — the price most people understand.

That’s because you’re shopping, you buy groceries. You noticed when prices went up, or prices went down. The time you understand because today is not tomorrow, and tomorrow is not the next day. You understand that one day decay equals whatever that number.

But volatility is a little weird. That’s because it’s not something we use on a day-to-day basis. And that’s really where your position can be affected. You can see right here I’ve got my Theta here 50 so I shouldn’t be up at least 50. But I’m also making 94-68, so you can see I’m making even a little more.

And in part, because I’m losing a lot on the Delta side. But I’m making it back because of the Vega. That’s because when you look at the VIX, it is up almost a whole point. It is up about 0.82 – so we’re up at 13.60 right now.

That’s what’s making things positive in this way. And if you’re getting the opposite effect where you see things a little bit more negative, well, it’s probably one of those issues. If you understand the price very well, that’s your Delta. If you understand Theta, that’s your time.

And Vega is probably what’s giving you a little bit wrench. Because I find that’s usually what most people don’t understand.

Keep in mind these are your risks:

  • price risk 
  • time risk and 
  • volatility risk 

This is where you make or lose money, as well.

Final Word

I hope this makes sense and gives you an idea and perspective to just look at it in a bigger picture of why you’re maybe making or losing money and if it’s happening unexpectedly.

And if it does helps you out – great!

If you need more insight, check out our website Rise2Learn.com where we have live classes, courses, and other great material for stock trading.

Also, if you have a specific question that you want me to answer for you, you can submit a question by voice right here!

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