DELL OPTIONS...
Thanks for all the replies. To just clarify a point, I am not really
trying to squeeze every 1/8 I can get out of the options I am
holding... on the contrary, I purchased the Aug 105 at 7 1/2, but I
paid 8 for the Aug 120 calls, then bought more at a lower price and
averaged down to 6, so you see, I am still in the negative...
I think DELL will do very well the coming two weeks, but if the
August call options are losing their time value, should I bite the
bullet now and switch to September calls or the increase in the
options price will be more than the loss in time value... that was
really my question... I am tempted to get out of the August calls at
break even and switch to September calls.... any thoughts... thanks
to all.
Don't buy September calls now. Buy right before labor day. Dell will decline toward the end of the month, whether a split is announced or not, and regardless of earnings. With time value decay, Sept calls will be much cheaper then. Dell will follow the general pattern of the market. Sell your Aug 120 next week. There should be a surge in price this week, so try to sell at about 115, or thereabouts. If it reaches that high, it will probably come back down again until a few days before earnings are announced, at which time it will probably just return to the level it will be at next week. Keep your 105's until the Tuesday before earnings are announced. Don't wait until earnings, because stocks frequently start declining right before earnings announcements if they have a run-up beforehand.
Because of the expense of Dell's premiums, and the rapid decay of those premiums going into expiration, plus the narrow trading range that Dell is in and will stay in until expiration, the best options strategy is to write 120 calls and 105 puts. I would like to point out, too, that option prices depend on implied volatility. Time premiums are expensive now because Dell had a big run-up in July, but because Dell isn't going to continue to climb significantly, and will trade between 105 and 120, implied volatility will decline and will cause more time premium decay of Aug calls than would be anticipated by shortening lifespan alone. Most buyers of calls, unless they bought before the big run-up in July, are going to lose. |
