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Strategies & Market Trends : Calls and Puts for Income -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (141)	4/7/2007 12:38:27 AM
From: Ira Player	Read Replies (2) \| Respond to of 5891

Jerome, In general, if you believe in Black-Scholes type Option pricing (it is close, if you discount Implied Volatility and Interest Rate skew), the relationship between the option premium and time is pretty constant from IV of 0.2 upward (it is a little faster for IV of 0.1). I did a study a few years ago at IV intervals of 0.1(If I find it I'll publish a table showing the results) that showed that with an assumed constant IV, Interest Rate and Stock Price, an at the money Call Option will lose 50% of it's value in 75% of the time remaining. In other words, regardless of the IV of the underlying or the initial time remaining, a $5 premium will be worth $2.50 when 75% of the time to expiration has passed. It will be worth $1.25 when 93.75% of the time has passed, etc. I think of it as a "half-life" of 75%. The "6 week" time is a pattern that the mind/eye sees, but the statistics don't bear out. I prefer 4 or 5 weeks. Like the day after the last one sold expires! Ira

To: Jerome who wrote (141)	4/9/2007 9:55:03 AM
From: Bridge Player	Read Replies (4) \| Respond to of 5891

For the aggressive traders willing to accept risk, I like this play this Monday morning, on Dendreon DNDN, which has just received FDA approval for a cancer drug. Sell a May 17.5 put for $3.80; sell a May 25 call for $3.40. Net premiums 7.20. Profitable at expiration everywhere between 10.30 and 32.20. Warning: stock is extremely volatile.