Let's take a short look at XLF 16 Nov Calls. With the market rebound the last few days and XLF back at an intraday over 15 from just under 14 why haven't the call options rebounded to where they were the last time XLF was at 15?
If you haven't heard of an options term called "The Greeks" this will be your first introduction to one of them named Theta, T for time. Theta is an option indicator relative to time. You should be familiar with the term time decay and options as well as how it impacts the overall makeup of the premium. This is the indicator that is showing the 16 calls will not move much more than a cent or two. The XLF would have to be above 16 in order for them to become worth much more than .10 by the time next Friday rolls around.
Many new options traders trade premiums like stocks anticipating the premium price will continue to climb as the underlying climbs regardless of how little or slow the underlying is moving in relation to the expiration date. In other words they forget that the XLF Nov 16 call option, with 6-days left on it, is pretty much worthless at this point and with no real volitility no reason for the premium to be worth anything much more than 0. XLF would have to be over 16 by next Friday at 4pm in order for them to begin to be worth more than worthless or a couple of pennies. Why would you pay premium for an equity you can buy outright for less?
This is why I usually suggest buying options a couple of months out providing time to recover losses or bad timings.
Happy Trading...
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