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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Dr. Id who wrote (1298)	7/3/2001 10:01:29 PM
From: FaultLine	Read Replies (4) of 5205

I've not had such a deeply ITM position before but it is interesting to me (in a perverse sort of way) that the claim that the farther ITM or OTM a call is, the smaller the time premium will be is supported by this QCOM move (see McMillian, Fig. 1-2, p.11). Using the QCOM JUL 55 calls I sold as an example <sigh>, QCOM was at about 57.50 the last three days, the JUL 55 calls were at 4.60. Today QCOM went to 63.90 and the calls rose to 9.40. Let's take a look at the time premium yesterday: Time Premium = JUL55 - (QCOM - strike) = 4.60 - (57.50 - 55) = 4.60 - 2.50 = 2.10 But today, the time premium collapsed to: Time Premium = JUL55 - (QCOM - strike) = 9.40 - (63.90 - 55) = 9.40 - 8.90 = 0.50 The Time Premium dropped 1.60 or about a 75% decline overnight. Now, I'm not sure what I am going to do about this situation, but with the Time Premium getting so small I do have to consider the real possibility that I may get called real soon now, so I may not have much time to decide my next move. Incidentally, the MSFT calls I bought are in the toilet too... :o( --dfl@onceagainproudlyonthetoptencontraryindicatorlist.nuts

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