No, I'm not adverse to risk, I'm just trying to figure out these options strategies. For instance, is it better to sell a call further out (such as the sep 12.5 bid 3 1/2). I would be reducing my downside breakeven to 11 13/16 in exchange for limiting my profit potential to 11/16 (strike=12.5 - stock price=15 5/16 + call price=3 1/2 bid) through september. Or with a shorter fix, I could sell the mar 12.5 @ 1 9/16 bid, reduce my downside breakeven to only 13 3/4, while limiting my profit potential to 1 1/4 through march 19th. Now, as I understand it the time premium erodes much quicker for near time options so, with the march 12 1/2 @ 1 9/16 and the stock @ 12 11/16, the time premium is only 1 3/8. Whereas, the sep 12.5 @ 3 1/2 - stk @ 12 11/16 gives a time premium of 3 5/16. Similarly, the jun 12 1/2 would yield a time value premium of 2 1/2, with downside breakeven of 12 5/8 and profit potential of 2 1/2. So, given the time premiums of 1 3/8, 2 1/2, and 3 5/16 for the march, june, and september calls respectively, how do I determine which one is the best value? I know it has something to do with the volatility but, I don't know what to do with that information or where to find it even (I know stocksmartPro has some volatility numbers but I'm not sure what to do with them).
Without doing an in depth mathematical evaluation, I kind of like the short term march fix, because it won't include the Q1 earnings data, which given strong results could lift the stock higher (and afterall I went through a lot of trouble reading about this company and determining how great they are. On the other hand I suck at stock picking, apparently. So, the contrarian in me says sell the longer calls).
It's been great having someone to bounce this chatter off of, THANKS! |
