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I bought Sep and Oct '18 puts on WTI futures strike price 58, two weeks ago. They increased in value on both recent 4% down moves. Today, the price of Oil is roughly flat. Why have the value of my options retraced almost completely the gains from yesterday when Oil remains 4% below it's open price yesterday?

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closed as off-topic by LocalVolatility, Daneel Olivaw, amdopt, Bob Jansen Jul 17 '18 at 20:16

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  • "Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance." – LocalVolatility, Daneel Olivaw, amdopt, Bob Jansen
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With Options, the Greeks will help you understand the story. You have a few factors working either for you or against you: delta, gamma, theta, vega. The price movement that worked in your favor will be reflected in the delta (Delta is the effect of the price movement to the underlying on the price of the option).

Vega is likely working against you too. Vega is the effect of volatility on your option price. If Oil is staying flat at 4% down, volatility is likely being crushed. Higher volatility is good for long options.

Most importantly, Theta is working against you. That is the effect of time decay on the price of your option. Your option is now two weeks older and there is less extrinsic value to the option than when you bought it.

Try a good google-fu for "Option Greeks" to understand it more succinctly.

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  • $\begingroup$ Thank you for your response - helps a lot. The 4% down move was yesterday. After an additional 4% 4 days prior. Wouldn't volatility remain elevated given that 2/5 of recent trading days have been multi-sigma moves? Also, is it logical for time decay to erode the value of a multi-sigma change in price given that 1 day out of the remaining 60 till expiry has passed? $\endgroup$ – Vincent Jul 17 '18 at 19:59

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