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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: FaultLine who wrote (1302)	7/6/2001 12:20:24 PM
From: FaultLine	Read Replies (6) of 5205

For those of you who were interested in my time premium discussion on Tuesday, QCOM has dropped by about 4.50 in the last two days. Now that the underlying has moved closer to my 55 strike price, we should expect to see a bit of a rise in the time premium. (see McMillian, Fig. 1-2, p.11) On Tuesday the time premium had sharply dropped to 0.50. Today, QCOM is presently quoted at 59.20 with the JUL 55 call at BID 5.60, ASK 5.90. The time premium now = 5.60 - (59.20 - 55) = 1.40. This week the changes certainly support the statement that as the price of the underlying moves farther from the strike, the time premium will decline, and conversely. Frankly, this seems counter-intuitive to me as we now have less time to expiry than on Tuesday and the expectations for this call have declined since Tuesday. Clearly the mathematical predictions are correctly realized, but at a gut level I don't get it. Anyone interested in giving me a "common sense" explanation?* --dfl * see profile for def. of common sense...

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