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Non-Tech : The Critical Investing Workshop

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To: Dr. David Gleitman who wrote (8125)	3/19/2000 5:50:00 AM
From: techguerrilla	Read Replies (1) of 35685

ELON April100's vs August100's Tom was not recommending selling August100's. I have only heard of him recommending selling far out calls to ward off margin calls. (The time decay on such sold calls does not operate as significantly early in the time period.) They can be bought back once the stock that dropped (prompting the margin call) returns to health. The debate that Tom and I had Friday was solely with respect to buying ELON August100's or, say, CREE September150's/160's. It's clear now Tom views the ELON mid-range play as a better one. Tom likes to sell covered calls one month out and receive heavier premiums. The calls to SELL are ELON April100's. The calls to BUY are ELON August100's. Compare the premiums: 12 vs. 31. They fit almost perfectly into the time decay square root concept. 31 divided by 12 is not much more than the square of 5 divided by the square root 1, the months remaining with respect to the two types of calls. The bottom line is that buying calls 4 or 5 months out is very good with respect to the mathematics behind time decay in options. One month: four months: nine months--square root of 1: square root of 4: square root of 9. As I see it, the only reason Tom has been veering away from advocating going farther out that 4 or 5 months is that it doesn't fit in well any more with these crazy market corrections and his resulting "time capsules." (Remember his advocating July QCOM calls a month or so ago?) Tom can correct me on any of this if he wants to do so. I don't intend to speak for him, but I think I have it straight. I hope I've been helpful. just porchin', jmanhavana (long on Q)

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