Options analysis (strike prices/time depreciation percents)
Tom, the key question becomes which options on Monday. I know you like Network Appliance. But that can't be the only stock for which options present an attractive opportunity in this climate. Qualcomm has serious strength, too, and was only recently beaten up. JDSU remains a powerhouse. I see these as the "big three" worth pursuing now. JMHO.
I think we should discuss, this evening, the various stocks that you think have strength for the April to late-summer time period and just how far out you think would be reasonable strike prices.
NTAP: strike as far out as 80?
QCOM: strike as far out as 160?
JDSU: strike as far out as 125?
Those are strike prices 60% out of the money.
The time depreciation will not be severe on them in the first two months. Let's say we have five months of time on the options, applying the square root approach to time depreciation, these would be time depreciation percents for the five months.
After the first month, 89.5% of the time premium would remain; after the second, 77.5%; after the third, 63.2%, and after the fourth, 44.7%. (Ballpark figures)
Under these percents, I like the leverage of five-month-out options under the current market conditions. The leverage obtained and the modest time depreciation of the first two months (22.5%) make these very appealing. If you sincerely believe a rebound will be House-driven through May, great leverage can be obrtained this way.
John |
