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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: RocketMan who wrote (1478)	1/22/2000 9:49:00 AM
From: Jill	Respond to of 8096

Yes, that's what I was trying to say. This is a different market. His approach is a good grounding, but one can position trade and roll out options these days in a matter of weeks, as you note. You can sell puts on a downdraft of 30 points, and buy them back a few days later on the rebound. You can buy OTM call options and they become DIM pretty quickly. Then you can sell or exercise or both. The volatility makes for huge premiums and short time frames.

To: RocketMan who wrote (1478)	1/22/2000 5:10:00 PM
From: Theophile	Read Replies (1) \| Respond to of 8096

Speaking of models....I need pictures to explain things on occasion, so I went to Macmillan (options as a strategic investment) this a.m. to examine a curve on time decay for a call... I feel there is an error here in the presentation by Macmillan, or perhaps it is simply the model limitation, I do not know, however this is not unusual when mathematics are used to describe real events. The graph on pg 11 indicates the intrinsic value is held to a lower limit of 0.00 (at the strike) and further decrease in option price is attributable solely to decrease in time value. I feel this is incorrect. I use options for time value almost exclusively. Just because the stock price drops 10 points below the strike and option price drops to $2, if I am still 4 months away from expiration, that time value is worth a lot more than $2...so, I would say the error is in limiting the intrinsic value, not allowing it go negative, when in fact this is exactly what is happening, at least as far as MY valuation of a call. Perhaps the model cannot deal with negative numbers, but the model would need modification, not reality. How can time value change if the date remains the same? Option price change can be attributable to the intrinsic value going negative, rather than time value change...a call that fluctuates in price on a given date has the same time value....think about what happens ON the day of expiration......the time value is already approaching zero. If the stock drops below the strike, what is changing, time value? Intrinsic value would go negative, because to exercize that call would cost you money!! The call is still worth a penny or so, for whatever reason, but in reality the option is less than worthless, except as a tax writeoff... :^) If someone can help me untangle this seemingly inaccurate representation, I would be most appreciative. Martin Thomas