VOLTAIRE'S PORCH-MODERATED Message Board

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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED

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To: edamo who wrote (32378)	3/5/2001 11:57:57 AM
From: FR1	Read Replies (1) of 65232

I agree and I think things will flatten out. Even if we get a strong recovery the curve will not be straight up for long. Do you use some kind of metric to decide when the premium is right for selling a call? After all, a $1/share premium is not enormous considering how BRCM, AMCC or somebody like that would have a much higher premium (and a much stronger potential downside). I have always been confused on how they decide the premium. I once looked up the calculations used and saw how they used Black-Scholes, etc. In the end, however, they say something like "After all these calcualtions, the floor person adjusts the premium to whatever fits the market at the time." So I gave up on trying to calculate premiums. It's hard for me to come up with a good strategy other than: "If the stock has run up a lot and you want to keep it, sell calls and buy puts." I am tempted to buy great leap calls on some tech issues like GLW (Jan '03 at 40). We have been down for a while now (lowering premiums) and a great leap gives quality names plenty of time to recover.

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