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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: SAF who wrote (613)	1/28/1998 10:44:00 AM
From: William G. Murray	Respond to of 2241

Steve, Sounds like time decay of the premium has taken (and will continue to take) its toll. You did not indicate how long ago you purchased the calls, but as the expiration term draws closer and closer, the time premium value decays. Since these calls are still way out of the money, their value is almost all based on time premium. With the stock price $7 below the option strike price, they have no intrinsic value at this point. Other aspects affecting the option price could include the outlook for the stock or a decreased volatility in the stock's price movements since you purchased the calls. I do not watch TSK, but the above should hold true for almost any option. Hope this helps. B.M.

To: SAF who wrote (613)	1/28/1998 10:52:00 AM
From: Carl Fritch	Read Replies (1) \| Respond to of 2241

hi, The answer is called "time value decay". All of your purchase price was time value and there isn't as much time left. As time goes by an option loses time value even if the stock is rising in price. This is one problem with options. One way to help avoid this problem is to look at where the stock has to go for you to break even before you consider buying an option. I don't know what you paid for the option(s) but you have to add the price of the option to the strike price ($45.00). That is where the stock has to be for you to break even when options expire in May. As you can tell the stock has to move a lot for you to break even, let alone make a profit. Wish I could be more help. I definitly would do some T.A. and decide where the stock will move the next while as best you can... you may want to consider getting out with a small loss rather than risking losing all of your money. Good luck. Carl Fritch

To: SAF who wrote (613)	1/28/1998 11:35:00 AM
From: hpeace	Respond to of 2241

you are too much out of money get the books and vdeos recced in here exchange2000.com

To: SAF who wrote (613)	1/28/1998 12:43:00 PM
From: margin_man	Respond to of 2241

It's time decay & out of money calls. P.

To: SAF who wrote (613)	1/28/1998 7:22:00 PM
From: Madpinto	Read Replies (1) \| Respond to of 2241

The stock has now risen to over $38, but my options are worth less or about the same as when I bought them. As a few people have said, time decay has played a roll in the poor performance of your options. In addition, another factor has more than likely influenced your calls. Volatility may have decreased and this would cause your calls to underperform. Here is a previous post that may help you to understand the dynamic nature of volatility. Please do not take this post as a recommendation or stategy. I have overgeneralized and always remember every situation has its own nuances. This is for general information only. The dynamic nature of volatility makes it the most complicated of all the factors which make up the price of an option. Think of volatility as a way of quantifying risk. You can figure out the implied volatility of an option, but this is not the "true" volatility of the option. When risk increases so do the prices of the options regardless if the stock ends up moving or not. Think of the day before and an earnings announcement. Option volatility increases because people perceive the possibility of a significant move in the stock. If the news happens to be benign, the volatility usually comes down. Often times new investors get disappointed when the stock moves in the direction of their options (up for calls, down for puts) and their options perform poorly. Risk premiums declines and this offsets the move in the stock. Volatility is a relative thing and it is possible to use it to your advantage. By deciding what the most likely move for the stock will be, you can use the risk premium to maximize you profits. Here are some of ideas of option plays to put on based on the scenario you consider most likely. These are fairly simple strategies with limited risk. Stock Move Option Play 1. Big move down --Buy out of the money put(the bigger the expected move, the more out of the money they should be). 2. Small move down --Buy in the money puts and sell out of (or at) the money puts or sell the money calls and buy out of the money calls. 3. No move --Buy a butterfly. 4. Big move either way --Buy at the money or out of the money puts and calls. 5. Small move up --Buy in the money calls and sell out of (or at) the money calls or sell in the money puts and buy out of the money puts. 6. Big move up --Buy out of the money calls (the bigger the expected move, the more out of the money they should be). Again, please remember every situation is different and these six ideas will not work as described in every instance.