Q&A
Jan, I don't have the formula for option time premium decay in front of me, but the important part to realise is that it is not linear, rather an accelerating curve. Options lose something like 50% of their time premium in the last 45 days of life. The most useful reference book I have ever read is "Options as a Strategic Investment"; in my dotage I can never remember the author's name, but any large book store will have it or be able to get it. Not easy to read, but if you can get through it, you'll know everything there is to know from a technical standpoint.
Jean, re: option expiries. It used to be simple--stocks had three months of option series listed: 3,6,9 months out. Now, most classes have four months: the nearest month out, the second month out, and then the two next months of the original 3,6,9. Hmmm, that doesn't make it clear, does it? Give the TSE a call at 416-947-4487 and ask them for a (free) copy of the option expiry cycles pamphlet. All I know is I call markets on six months of ABX options--four regular months, June, July, October, and January (98) as well as Leaps (Jan 99 and Jan 2000).
Hope this helps. Happy trading.
Porter |
