Put option lost value when stock price dropped?

I assume by "negative balance" you mean a loss from your purchase price. The puts still have positive value.

The implied volatility of MNOV collapsed today. I don't know the latest company news, but it appears that the developments leading to Monday's surge in the stock are now somewhat reversed, in the market's perception. As of Monday, risk was believed to be very high on both the upside and downside. The stock rose, but people (including you) were also paying high premiums to protect against a crash.

A possible coherent explanation for today is that, in the market's view, much of the upside risk went away (leading to a sharp drop in the stock) but also some of the downside risk went away (so a further drop is now seen as less likely). This is unusual behavior. It is more often seen with earnings announcements, where a moderate disappointment can both tank the stock and reduce the value of lower-strike puts because a disaster scenario is taken off the table.

The lesson is to beware of elevated implied volatility when buying options. This can be mitigated by buying in-the-money options, which are less sensitive to implied volatility: Higher-strike puts on MNOV did gain today.

Per your question and subsequent comments:

When implied volatility increases, so too does time premium. And conversely, it contracts when IV decreases. With an IV of 280%, your puts were incredibly expensive.

If you input all of the variables into an option pricing model, what you experienced was normal. IOW, with a share price drop of $3.80 along with an IV contraction from 280% to 145% would result in about a $15 loss per put.

What could you have done differently?

• Buying 280% IV options is an invitation for disaster. Your trade could still work out nicely if MNOV continues to drop but at this point, a $3.80 share price drop with no gain is a lot of wasted market move.

• An alternative is to sell some expensive premium to offset overpaying for the long leg. A vertical spread at the same $1.35 cost per spread would have provided a profit today. Obviously, that result is better today but would end up performing worse than your long put if MNOV dropped a lot more.