Semtech Message Board - Msg: 3262603

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Technology Stocks : Semtech

SMTC 71.02

+5.8%

Dec 18 3:59 PM EST

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To: pham who wrote (732)	1/26/1998 3:18:00 PM
From: Sword	Read Replies (1) of 886

>>Is it a fact that the stock declines more that the options losing in value? Twice as much?<< Only with options whose strike price is almost equal to the underlying stock price. For deep in-the-money calls there is a dollar for dollar change. For deep out-of-the-money calls there will be hardly any movement in the option price. For near at-the-money options, there will be a smaller rise or decline in the option premium than in the stock for a given rise or decline respectively. In this case the stock dropped from 22 to 21 and the 22 1/2 call from 1 11/16 to 1 1/8. But the above only applies to short term flucuations. If I had chosen to keep the options until expiration, and the stock didn't go anywhere but closed at the same price three weeks later that it was at when I bought it, the options would have been worthless and would have expired unexercised. They would have declined a lot more than the price of the stock. This is the advantage of writing the option. It wastes away to nothing if the stock never rises above the strike price (22 1/2 in this case) and gives the option writer an advantage against the market. Jerry

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