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Non-Tech : The Critical Investing Workshop
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To: Dr. David Gleitman who wrote (8125)3/19/2000 5:06:00 AM
From: techguerrilla  Read Replies (2) of 35685
 
Call Premiums

. . . . regarding time are generally related to square roots of remaining time. Think about that as a GENERAL premise! Under that general concept, one that is not perfect from situation to situation (i.e. specific stock's performance and recent volatility), to buy orsell a call 9 months out would attach a premium of only 50% more than to buy or sell a call 4 months out. Why? The square root of 9 is 3 and the square root of 4 is 2.

That is one reason why buying (but not selling) calls 4 months out is pretty smooth. Under this concept they would carry a premium of twice as much as one month out. Why? The square root of 4 is 2 and the square root of 1 is 1. Remember Tom repeatedly suggesting buying July calls on QCOM in late January and early February? That idea is keyed somewhat to that premise.

Within a given month of a short term call, look at the 30 days as being governed by the same concept. 3/5ths of the time decay in the last 25 days occurs in the last 9 days. Why? The square root of 9 is 3 and the square root of 25 is 5.

This is all very general, but, basically, very fundamental. I just thought I'd throw it out. If anyone cares to correct me, I would appreciate it. I'm somewhat new to options, but understand their mathematics rather well. I have been teaching mathematics ever since I left the United States Department of Justice, Antitrust Division, 20 years ago.

Just porchin',
jmanhavana (I'll be in Cuba in a week--Q launches! Don't short it! Just a warning!)
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