Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (2316)	8/31/2001 9:13:54 PM
From: 100cfm	Respond to of 5205

John I understand better what you're trying to point out. But to us dummies we look at it one way. When the stock goes down so does the price we can sell a certain call for or buy that call back if we were lucky enough to sell it when the stock was at a higher price. But yes the premiums don't move in lock step with the stock price and mostly to our disadvantage. Meaning when you've sold calls the premium doesn't vanish fast enough as the stock price declines and when your long calls the premium doesn't rise fast enough as the stock price climbs. At least that's they way it seems when it's your money is on the line. 100

To: Road Walker who wrote (2316)	8/31/2001 11:29:54 PM
From: BDR	Read Replies (1) \| Respond to of 5205

<<As the market, or a stock, goes down, generally speaking the option premium goes up as a percentage of the strike price to the stock price.>> Yes, option decay with time or with decline in stock price is not linear. A good thing if you are selling calls and generally bad if you are a buyer. We are describing delta, the rate of change in the option for a given change in the stock, which is always less than one. Why is that a disadvantage? And could it be any other way? Short calls are acknowledged to be a less than a perfect hedge against a declining long stock position. If someone wants a hedge with a delta of 1.0, short the stock. <<An example is that the VIX almost always increases as the market declines.>> Yes, but the VIX is a ratio, not a vector. And a graph of VIX is not just the inverse of the market. If it was it would have no predictive value. Maybe it doesn't anyway, we just like to think so.(g) Compare VIX: stockcharts.com[w,a]dallyymy[d19970101,20010831][p][vc60] with NASDAQ stockcharts.com[w,a]dallyymy[d19970101,20010831][p][vc60] VIX can be high for any value of the market. Approx. Approx. VIX peaks NASDAQ end of Oct '97 1525 early Jan '98 1500 Sept 1 '98 1500 (VIX at highest peak in 4 years) early Oct '98 1450 early March '00 3800 Oct '00 3100 end of Dec '00 2275 end of March '01 1600 VIX = or > 35 at all those times.