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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (5332)	2/25/2005 12:37:35 PM
From: Walkingshadow	Read Replies (2) \| Respond to of 8752

Time value decreases in accelerating fashion as expiry is approached. Buying options close to expiry can only give you a profit if there is an unusually large move in a stock in a given period of time. This is a simple mathematical fact, since calculations of premium price are strongly influenced by the volatility of the underlying. Unusually large moves are exactly that: unusual. So the odds are not in your favor. Everybody has easy-money tales of close-to-expiry options that they made 1000% profit on. But if you consistently try to trade these, most of your trades will result in your options expiring worthless, and you will eventually go broke. The boys in the options pits didn't get there and don't stay there because they come out on the losing end of options trades. They are very good at what they do----taking money from retailers who think they can get rich quick. Besides the fact that the odds of profit are strongly stacked against you, the options boys make your life miserable with the spread. Often, even if you jump in front of the inside ask, you will not get an execution, even if there is a lot of open interest. They have no shortage of strategies.... for example, the underlying may move, but the spread will not. Almost anybody who knows about options and has had experience trading them will tell you that with rare exceptions, it is not wise to buy contracts that expire less than 3 months away. I agree with that. T