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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: FaultLine who wrote (1361)	7/7/2001 2:29:33 AM
From: Thomas Tam	of 5205

I think at least we are getting closer to the answer. Andrew nailed it pretty good with the concept that option strikes that are close to the current price will have a larger premium attached. The size of this premium is directly affected by the volatility of the recent price action +/- fundamentals +/- overall market stability. The volatility index had been low (due to a very tight trading range) and when we had this NOK news there was a big surge leading to the increased volatility. Couple this with the huge drop the last couple of days on earnings warnings. All of these factors lead to an increase in premium, but as the stock price rose, the time component of this premium would compress due to being further from the strike price. As the price of QCOM has descended, getting closer to strike, the time premium increased again. The increases/decreases are not one to one, but directly related to volatility. So if the question is why did the time premium increased from 0.50 to 1.40? The answer is partly volatility and partly being due to QCOM being closer to the strike price. I still have one more lifeline right? <gg> Later

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