Hi Cosmo,
RE: Calls vs the underlying. Could write a book on this one. You could price fair value premiums with Cox-Ross-Rubinstein or Black_Scholes model and compare what the market bears. I tend to guestimate what I feel the rumor will do the price of the underlying within a certain time frame, then look at the near at the moneys. I hate paying for time which will decay rapidly as expiration nears, so tend to buy at least 2 months, but rarely more as the premium creeps up after that. A simple calculation and I get a nice return with out much risk.
If the rumor turns out to be true, and they make some major announcement in the next month, I will capitilize on the move up, with out sacrificing too much capital by going with Calls vs the stock outright, capital that I can daytrade with.
Oct LMT ATMs options were a cheap gamble this week that they got the contract. Again, using little capital.
Hope things are well with you, let me know if you are ready to come back home...
Later
S |
