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Strategies & Market Trends : Option Spreads, Credit my Debit
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To: Jon Tara who wrote (998)10/20/1999 7:40:00 PM
From: jjs_ynot  Read Replies (2) of 2317
 
Jon,

Spreads will vary with time to go.

1) For Out of the Money Spreads, the time premium should make the spread value go to an maximum vlaue and then plateau. Eventually, the spread value will fall of slightly (if you use the bid on the sell side and the ask on the buy side) due to larger bid/ask spread.

2) For In the Money Spreads, the credit should be fairly constant since intrinsic value doesn't really change with time and the time premium should be about the sam on both sides. This too will tail off further out due to bid/ask spread.

3) At the money spreads fall somewhere in between and depend on the implied volatility of the underlying security.

Dave
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