Reduced loss with options: example

Today a position that I have dropped a few cents off the start due to a downgrade by some company or other. The stock was ARRS (Arris Group).

The interesting bit is that the stock gapped down from about $12.70 yesterday to $12.10 at the open then proceeded to head down to hit $11.40. It seems to have stabilized at about $11.70 now. Considering that the stock dropped $1 overnight to now, the option I hold is down 35 cents. I bought the $15 strike call when the price was near $12.75 so the delta was in the 0.35 or 0.40 neighbourhood... right now it sits at 0.29.

Paper loss had I bought 200 shares of ARRS would be $200, so far my option paper loss is $75. What looks a little worse is the return as a $1 loss would represent 7.8% on the trade compared to the $75 loss being 50% of the trade.

The upside is that the positive returns, had the price moved the other way would be equally varied, if not more pronounced as the delta increases and the option price goes up in a non-linear fashion.

I will be updating my paper tracking later today to see how much ground I have recovered.

Jeff.