One of the main things you have to check is the IV. Which is a lot more than time value. Eg, when APM went from 25 to 35, the AUG 30's were going for 6-7, once the price started dropping to 32, the option started falling to 4-5, and as the price stablised around 32 1/2, the option started to loose IV and is around 2 3/4. To roll over its always better to call your broker and tell them the price you are willing to sell and buy to do it. setting limit orders will cause you to pay quite a bit more. I sold my AUG 30's on APM for 3 1/2, and a week later bougth it back for 2 1/2, even though the price was still around the same, the IV had decreased a lot. Take the AUG 35's, they were going for 1 1/4 when the price was moving 2-3 points a day, now that the price is varying 1/2-1 a day the options is only worth around 1/2 point. I usually when rolling, I move to the next strike price and next month and then later on roll on down to a closer strike price. This way you still make money if the stock makes a sudden move, and also you dont loose all the IV in the prices.
Once the option gets in the money the value goes way down, eg WCOM JAN 35's were around 2 1/2 when the stock was 32. Its around 4 now that the stocks at 35. So for a 3 point rise in the stock I get a 1 1/2 gain on it. Since I want to own this stock I didnt care, but usually I would have bought the AUG or SEPT options. If they expire worthless, so be it, I can always buy the next one after option expiration and not really loose much money in doing that. Its just my style to keep my losses and gains to the minimum. |
