How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: B4TheBell who wrote (6193)	12/19/1997 8:14:00 AM
From: Herm	Read Replies (2) of 14162

Hi B4, As you know, the Theta value of an option represents the measure of how much an option's price decays for each day of time that passes. That portion of the option's value does not really start to significantly lower the option's price until you get much closer to the expiration date. The other factors such as the stock price (intrinsic value) and the volatility play a much bigger role in determining the value of the option price that far away from the expiration date. So, to answer your question? You forgot to factor in the volatility which could offset or enhance the drop in the option price by 1/8. Is it possible? Yep! The combination with volatility value and Theta could move the option 1/8 over night! As a CCer or an options buyer, I would be more inclined to watch and pick CALL options based on the Delta values. Reason? Depending if you are being defensive or offensive in your CCing, you can reduce your risk and enhance the probability of keeping all of your CCer premies. Likewise, if you are going for a sideshow kill you can get in/out of a CALL option (those with higher Delta values) with more profit sooner. Reason? The option price responds much closer to the underlying stock price in higher Delta options. That usually means options that are "in the money" simply because the major portion of the option's value is intrinsic (real dollar equity) and the volatility spikes make it VERY PROFITABLE! Doug's site was providing Delta values. Check it out at webbindustries.com under the TRO matrix. We are still looking for another feed for the options data. So, I don't know if it is up and running again!

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