Dell Technologies Inc. Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc.

DELL 133.35

+0.1%

Nov 28 9:30 AM EST

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Geoff Nunn who wrote (72982)	10/19/1998 7:17:00 PM
From: Chuzzlewit	Read Replies (3) of 176387

Geoff, I agree with you right up until the time you reach your conclusion. I think that the reason that short maturity options lose their value much more rapidly than their longer maturity brethren is purely probabilistic, and reflects the rapidly decreasing probability of a stock to increase (or decrease) to a certain set figure before the fact. In essence, it is simply reflective of the more volatile nature of small number statistics. What I'm advocating is simply this. Suppose you have a choice between selling (on covered calls) a Nov $65 at 2 and a Dec 65 at $3.50 (The numbers are hypothetical). Suppose that at the end of the period the price of the stock remains at $60. The sale of the shorter option yields 3.33% of the price of the underlying stock, and this may be compounded on a monthly basis regardeless of whether the stock rises (and is called) or falls. Thus, the yield on the option would be 48.2% pa. But the longer maturity option yields only 40.5% by comparison. As a writer of options I am making my money by selling time value to a buyer, so it seems to me that I want to maximize the time value per day. I want to sell options at the point where the slope becomes steepest. From a practical point of view this occurs with maturities of one month. Even if the slope is steepest at say 2 weeks, there is nothing to be gained by waiting since I am looking to maximize my profits, rather than maximize my profits for each day I am short the option. Now the rest of the strategy is to use stocks that you really want to own, and I write calls that are about 10 - 15% out of the money. I've been doing that with good results on Dell since last spring. Empirically, I couldn't be happier since I have extracted about $12 in premiums per share and still own all of the underlying shares. TTFN, CTC

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next