Question about Option Greeks

Trader in PropTrad

So I've never trade options before so I'm trying to grasp an understanding and hoping someone can help me out here. On the below screenshot, this contract is trading .0310 bid @ 0.050...

So if I buy a call, I know I will be paying theta -2.057 each day. I spoke to a vol trader within my firm and he told me options bleed theta through out the day. So if I buy a call now and four hours later, all else being equal, the contract will lose premium due to theta bleed. But if the market is trading .0310 bid @ 0.050, how can the theta be -2.057... Let's say my theo was correct, 0.0281, does this mean the theo will be 0.0281 - 2.057? That can't be right. That means the option has no extrinsic value. Can someone explain?

Comments (4)

  • Trader in PropTrad
Feb 17, 2020

Sorry what I meant to say was if I lift the offer... would the value of the option, again, all else being equal, be the price I executed at minus the theta, tomorrow?

Feb 18, 2020

An option can lose more than theta. I don't know if the underlying moved for you or against you because you're speaking Option Trader Speak instead of English, which is not necessary. I'd like to understand your question better but my first guess is that you're wondering if theta decay captures all of the loss such that the price every day is yesterday's price minus theta? Answer is no, underlying can move against you too.

Most Helpful
Feb 18, 2020

My guess is that there's some sort of multiplier. If it's an equity option (doesn't seem likely to me due to the values on that slip) the multiplier is naturally 100, but oil for example has a multiplier of 1000, etc. This looks like nat gas to me, so you can easily look up the multiplier, but say it was 500 or something, So if you pay 0.05 on a 1 lot, you're really buying 500 - paying $25, and the position will decay 2.057 (theoretically) over the course of the next day.

Don't really know for sure, but that's my best guess.

EDIT: NG has a 10000 multiplier on the CM so maybe that's not what it is ($281 position ATM decaying $2 with just 8 days to expiration does not seem right at all), but still assuming it's a multiplier issue

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  • Trader in PropTrad
Feb 18, 2020