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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (1767)	1/2/2000 11:43:00 AM
From: Dan Duchardt	Read Replies (1) \| Respond to of 2241

TP, I was about to offer another opinion on your situation and took a look at the recent prices. It looks to me like you have confused some things. The only call selling around 16 now is the 2002Jan35, and it looks like the lowest possible entry was at 7_3/8. The 2001Jan35 could have been purchased at or below 7, but they are currently quoted at 12_3/8 x 13. I will assume that you own the 2001Jan35. As I understood it there was a point where a call is in the money enough that the time value disappears and I wanted to avoid that. I suppose the sooner, the better? You are correct that time value will erode as the price goes up, but that is not necessarily something to be avoided. If you believe that TYC is going to 45, and that it is likely to happen within the next few months, then holding on to what you have could treat you to an additional $4 to $5 gain. Right now the delta (rate of option price change compared to underlying price change) on the 2001Jan35 is 72%, and it will go higher as the price rises. When all the time value is gone, delta would be 100%. You could sell what you have and roll to a higher strike price, and/or a 2002LEAP, but if you do that you will decrease your potential gain (delta is smaller for the higher strike), and the spread, and the commission. But you will also lock in some profits and reduce your exposure in the event of a pull back. What you do really depends on your confidence level in the stock and the level of risk you are willing to accept. Your current position has greater potential for both gain and loss than a higher strike position. Of course you could just take your gain now and go find a new stock. FWIW, I sold a small position in TYC on Friday when it started pulling back from the high. I expect 40 to offer some temporary resistance, and I'm hoping for a nice reentry. But when I add up all the gains I have missed in 1999 by selling too soon, I get sick. Dan