they will jack the premium up...you buy
but then the market bounces back up they strip the jacked up part of the prem as well as normal prem.
You weren't posting to me, but I certainly know what you're saying. Am just reading Friday/Sat. posts now because of the "bonk" attack on SI Friday night prevented me from signing on..finally gave up trying.
I have, on one volatile day last Fall, experienced a costly lesson on the volatility premium. I saw the market was rebounding off a deep low very fast, so I put in a market order for calls on a stock (COMS), as the stock was rising very fast. The stock actually closed about a point higher than it was at the time when I bought the calls, yet the call price closed the day lower than what I paid. I was buying the next strike up.
I'm thinking it also has to do with simple supply/demand, in addition to volatility. Since it seems from my observation that most people like to buy just above (out of) the money (risk/reward can be very attractive there), then the demand causes premium spikes.
For days such as Monday, volatility will obviously be high, so that's going to add premium right there. Then if/when the market starts to come off a bottom, calls just out of the money are going to be very expensive. I'm thinking that for going long calls Monday, I'm going to go for at or in the money. Paying up for some intrinsic value may be the best way to avoid paying too high a price intraday, particularly on a high volatility day such as Monday will undoubtably be.
DK |
