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Strategies & Market Trends : Tech Stock Options

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To: Electric who wrote (42048)	5/1/1998 7:03:00 PM
From: Sowbug	Read Replies (1) of 58727

General question, thread: What are the advantages of holding a deep in-the-money call? Real world example (split-adjusted): In early March I bought AOL July 60 calls when AOL was trading at something like $55. It was out of the money, so all the $7 I paid was time value. By yesterday the calls were trading at $22 and AOL was $82. So it was virtually all intrinsic value, even though the option term lasted until July. I sold. By that point it seemed like I was losing something because there was no longer any time premium, and if I were going to play zero-premium options, I ought to buy May calls instead (because more of my investment is working as a speculative tool, rather than the $10-$15 or so of the July 60s that were pretty much guaranteed). Any comments? I don't really understand the wisdom of keeping a call like the July 60. If someone can explain why it's wise to hold (other than you think AOL is going to go up, which is ok with me because I'm plowing some of the money right back in to out-of-the money calls again), I'd appreciate it.

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