What you see vs. what you get The options risk curve Part II:

Your beautiful risk curve did not provide you with the beautiful profits it seemed to promise on day one.

In our previous installment, we said we asked the experts about this phenomenon, and they gave 12 reasons, nine of which we covered in part I:

1.       Options are more like quantum physics than classical physics.

2.       The map is not the territory.  The risk curve is merely a theoretical model.

3.       Vega – implied volatility -- will make or break you.

4.       Supply and demand are the final arbiters of options value, not risk curves.

5.       Your options may not mirror the VIX.

6.       Market-wide risk is always lurking in the background, even in today’s ever-upward market. A “volatility eruption” has the same effect as extending days to expiration (DTE).  The opposite is true as well:  a “vol crush” is the same as shortening DTE.

7.       Theta expectation is more reliable early in a position vs. late.

8.       Then, there’s the little matter of execution.  If you pay too much, it will affect the P/L of your risk curve.

9.       Anomaly weekend pricing.  Neophyte options sellers think it a great idea to sell on Friday and collect theta over the weekend, but in reality, market makers mark down options in advance of the weekend.  Translating:  there is no free lunch.

Here are the last three considerations in our list of 12: