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

To: rydad who wrote (3364)	2/5/2002 12:38:53 PM
From: Dan Duchardt	Respond to of 5205

rydad, For a calendar spread, time erosion improves your position in the absence of price movement. Price movement toward the strike price improves your position and away from the strike price hurts you. If the movement away from strike is slow enough, time erosion can overcome the price movement, but when you add in the bid/ask spread it is not likely you can stop out with a profit or flat if the price goes the wrong way. The example you give rests on the hope that both price movement and time will work in your favor. If price reaches the strike quickly, it will not improve your position all that much, but if it hangs around there as expiration approaches it will work out very nicely. As for which option price moves faster, I suggest you take a look at a series of option quotes on the stock and compare the deltas for corresponding strikes in different months. There is a definite trend for each strike, but is different for ITM and OTM options. For ATM, the near term delta will be very close to 50%, but the longer term option should be a bit higher. For ITM, near term deltas approach 100% while long term deltas are lower. Dan