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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe
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To: Dan Duchardt who wrote (28)8/12/2001 4:12:33 PM
From: alanrs  Read Replies (1) of 1064
 
Dan;

I've had a good night sleep now and have a better handle on what I was looking at. With NTAP closing at $13.91 , the Jan 04 option asking prices are as follows:
LEAP ASK Intrin value Time prem Implied Vol
Jan 04 5 $10.90 $8.91 $2.90 100%
Jan 04 7.5 $9.30 $6.41 $2.89 83%
Jan 04 10 $8.40 $3.91 $4.49 83%

Using the theory that I want to buy as little time premium as possible, and also the lowest volatility possible, I should be buying the 7.5, which is what I will do.
I am unable to re-run this today since my machine is not behaving well. I've had to uninstall the analyzer a few times and start over, so I hope the above #'s are correct and not the result of some computer error.
I am really trying to get a feel for volatility and time premium and how they work together or offset each other. I was surprised to find the 10 had a low volatility with a relatively larger time premium.
And yes, I do own NTAP, so the position really is a covered call plus a spread. This allows me to establish the position in whatever order seems appropriate and eliminates the upside risk. This seems prudent to me at least until I have a better feel for the spreads-like after doing it for a year or so. I still like looking at the position as a stand alone proposition so that I do learn this.

ARS

Edit: Sorry the little chart is hard to read-the spacing is better on my screen, but bunches up when I post it.
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