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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: BSGrinder who wrote (11057)	4/24/2002 3:24:22 PM
From: rolatzi	Respond to of 36161

IMHO, 6 month options are optimal as a balance between premium paid and decay of time value premium!! If you want to buy calls or puts and you buy 6 month options, there is very little decay in time value premium over the initial three months. At that time you have to assess whether you want to roll over, cash in or hold. It makes sense to roll over at that point because the loss of time value premium starts to accelerate in the last three months and especially in the last month. You can therefore recover most of your premium invested at 3 months. For the selling of options, I generally use options with 1 to 2 months of life. With regard to in or out of the money calls, in-the-money calls hold value best but you get a smaller return on you money if the stock moves in your direction. If you guess wrong however, you lose less from an in the money option. It all depends on your level of pain and risk. If you believe in buy and hold buy leaps. Ro.

To: BSGrinder who wrote (11057)	4/24/2002 3:27:43 PM
From: waverider	Read Replies (1) \| Respond to of 36161

Good points Grinder. At the moment I have $30 2004's on NEM. You are right about the tendency to be a bit more loose with the stop loss/sell points here. Since they are so far out, one has a tendency to not sweat the noise. Which for me is a good thing. With shorter term options, I have a tendency to let fear get in the way and will pull the trigger quicker. I know my emotional limits on these things which is a critical risk point to consider. I have rarely made much money on short term options because a couple days worth of downside can make them worthless and it usually takes a longer time for them to return...all the while the time premium is working against you. I can't stress how important it is to know one's emotional and risk tolerance limits when dealing with any trade...especially options. The other thing to consider about leaps is that it is generally a good idea to start thinking about selling them within 10-12 months BEFORE expiration. The time premium really starts to get chewed up then. This discussion is focusing on calls, not puts in case anyone is unclear about that. But 6 months out is a reasonable risk for me and I am considering it. Thanks for your input. wr