Put option premium decreasing when underlying is also decreasing

You bought an option which will pay you money if your chosen company drops from $41 to $17 within the next 2 weeks. That is a massive, massive drop in value required, and you should understand how incredibly unlikely that is. Like, lightning striking-levels of improbability. I assume liquidity of your chosen option is sparse, and thus the value you see reported might be just a handful of trades per day, if that [because few people will want to buy such an option]. This means that the value you see represented may not even exist for long, because perhaps no one else would buy the option for another day or so.

A few other misconceptions you seem to have:

• You expect a decline in the value of the underlying to increase the value of your put. You are correct, but you are (a) overestimating the impact of the small value decrease in the underlying [if you need something to drop 70% in value to be profitable, then a drop of 20% still leaves a lot of room left to go], and (b) underestimating the time element associated. Such an option with a 1 year expiry date would be more valuable than an option with 2 week expiry, because of how quickly the catastrophic event would need to occur [for an example of this, check the value of the same strike price 1 month out, 1 year out, etc., and see how much more expensive it gets].

• You state that your loss is 'unrealized'. This is almost a gambler's fallacy, akin to closing your eyes and hoping the bad result doesn't see you. Let me tell you, every hour that goes by and you fail to sell the option, you are digging yourself into a hole - time is ticking and with such a short term option, that ticking time is just dropping value further. Perhaps you win if the company declares bankruptcy in the next week, but short of that it is hard to see this paying off. I repeat: You seem in way over your head.

I suggest you avoid trading chatrooms, which have become so prolific the last number of years, which perpetuate these mentalities. Better to invest simply in low-risk ways than gamble.

Aside from the time decay of the option, being a weekly, the only reason I can think that the premium would've dropped would be from the contracted IV.

You're right that the losses from Vega probably exceeded the gains from Delta/Gamma

But why is IV dropping?

Has there been a significant event that's now in the past (see IV crush)? Other than idiosyncratic events related to the underlying, the FOMC minutes, NFP release, and other economic data come to mind.

If not, it could be due to the option being thinly traded. Option market makers quote in IV, rather than price, and illiquid far OTM options have large bid-ask spreads, both in terms of IV and price.

I don't usually buy put options, but I thought the inverse of call options held: option premium rises if underlying falls. Is it because there is less demand for this option as the options market does not feel that the strike will be met by the given expiry?

You should read up on the Greeks (Delta/Gamma, Vega, Theta) and how they change as the option approaches maturity.

Given how far OTM (out-of-the-money) your put is, it will likely expire worthless.

500% is an extremely large IV, even for a weekly option (volatilities are always annualized). deep out-of-the-money and deep in-the-money options typically have higher volatilities than options close to the underlying, possibly (there are many theories) because changes in stock are not as normally distributed as the typical option model assumes, since large rises and falls are observed more in the market that the "normal" distribution would indicate. Investors are willing to take more risk on a large drop (or gain) occuring out of the blue, turning a relatively small bet into a potentially large payday. It's like roulette - you expect to lose more times than you win, but the large paydays can make up for it if you play enough.

Bottom line - you paid a lot of "vol premium" for that option, and it's eroding. And options that are deep out-of-the-money have very small delta, meaning that changes in the underlying price has very little impact on the value of an option. Your only hope for profit would be either a massive drop in stock price or a rise in volatility. You had a drop in the underlying but it affected the option less than the drop in vol.

Volatility is the second biggest factor in the price of an option, next to the underlying price, so it's not unheard of for the change due to a change in volatility to far outweigh the change due to underlying price, especially if the vol is already inflated and has a lot of downside exposure.

But why is IV dropping?

There's no way to know for certain. IV is a measure of uncertainty. So apparently the market is less uncertain about the future of this stock. It could be because there was some news that removed some uncertainty, or some rumors that spiked the uncertainly that proved to be false, or some other reason that increased demand (raising prices and raising implied volatility) irrationally.

If the price of a put drops, it's due time decay and/or share price increase and/or contraction of implied volatility.

When the price of a put drops dramatically in a very short period of time despite the underlying dropping significantly, it's due to a large decrease in implied volatility.

Why did IV drop? Most likely there was a news release that was not taken well by traders. Perhaps a poor quarterly earnings report. Or perhaps something like a large contract or merger not going through, etc. Check the news and you're likely to find the culprit.