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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (43992)	6/30/2001 1:05:18 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 54805

>> The time premium of the ITM calls when the stock was at about the same price that it's at now was $8 two months ago. That's about $1 per month. The LEAPS I just bought are about 5% out of the money, yet the time premium is only about about $.80 per month, 20% less. I realize that the farther into the future the expiration occurs, the cost of the time premium on a monthly basis is less (which is at the core of my strategy), but is it usually that big a difference? I think that using different strike prices at different times has distorted your analysis. Since time premium varies in direct proportion to the square root of the time remaining on the option, I would expect an even larger difference in the monthly premium. Let's compare today's price for an at-the-money qcom call with the price for an at-the-money qcom leaps to make that determination. qcom jan02 60s closed with an ask price of $11.00 Theoretically, the qcom jan04 60s, which have 30.5 months remaining versus 6.5 months for the jan02s, should be valued at the square root of 30.5/6.5 times that premium, or 2.17 X $11 = $23.87. They actually closed with an ask price of $24.10, which is precisely in line with the theory. On a monthly basis, that works out to $1.69/mo. for the jan02s versus $.78/mo. for the jan04s. uf