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

To: ljbein who wrote (4013)	3/1/2000 4:36:00 PM
From: Poet	Read Replies (2) \| Respond to of 8096

Hi Lorinda, You're asking a lot of great questions. First, did you buy the CMGI calls at market or limit? Throughout the day, premiums move up and down and the spread between the bid and the ask narrows and widens. Also, options are sold on a number of exchanges (not just Chicago) and are often atdifferent prices. In other words, option pricing is slippery! How to determine if a premium is a fair price: Yes, McMillan and any good options book will go into this in great detail. First, the premiums of the options on an issues are effected by the volatility of that issue. For instance, the premiums on JDSU will be higher than the premiums on a stock trading in a narrow range, like DELL (at this point in history, anyway.) When you're looking to buy a call, look at the current price of the stock and add it to the premium of the call you're interested in. This is the amount you're going to be paying for the stock if you intend to exercise the call. If it seems reasonable, it's worth buying. I'm sure others here can add a lot to my answer. You're looking at NTAP calls. NTAP's one of of my favorites and I've got March calls I'll be exercising. You're correct in your thinking about strike prices: the deeper in the money the strike price, the higher the delta (the rate of change in the value of the call with each point increase in the value of the stock.) For exaple, let's say NTAP is now 200. You buy an April 100 call and an April 200 call. The April 100 will be more expensive to buy, but the delta is almost 1, so for every point that NTAP moves up from 200, the value of your call increases almost a point. The delta of an at the money call is lower, moving only a fraction of a point with each point increase in the stock. Generally, I purchase calls that are in the money. If an issue has a lot of momentum behind it and a reason to run, like a split, I'll buy at the money calls. I hope this helps a bit. Again, really great questions. Feel free to keep asking. It's nice to see you here.