When trading options there are several important pieces to realize. First and foremost is that three factors go into determining the price of an option. First is the natural value, i.e. the difference between the stock price and the strike price. This is a minimum value for the option. Second is the time value - the more time left, the higher the price, and the time value really starts dropping fast at the end. Third is the volitility - the higher the volitility, the higher the price. Thus if one stock trades on consecutive days at 40, 39.5, 40 and another trades at 40,35,40, option prices on the second security will be higher.
Next you need to understand that whenever you establish a position you lose both a commission and the spread, and on options the spread can be rediculous as a percentage, so don't trade options too often.
Third, remember that selling puts is really the same as buying the stock and selling a call. Conversely, selling a naked call is the same as shorting the stock and selling a put. So synthetic positions can be established.
Also, remember that most people who trade options lose, so be careful.
Good luck,
Carl |
