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Strategies & Market Trends : Advanced Option Strategies -- Ignore unavailable to you. Want to Upgrade?

To: R. Gordon who wrote (6)	1/28/1998 11:09:00 PM
From: Greg Higgins	Respond to of 355

The two sets of numbers are different exchanges. The price curve for an option always has its maximum time value when the stock is exactly at its strike price. This is true for both puts and calls. But, from McMillan (page 230), an in the money put generally loses time value premium faster than an in the money call does. Last week, the day before IBM announced, when it was up around 108, I happened to look at the charts and noticed it. I decided it was good for a few points to the down side, so I bought the Mar 120 put for 13 and change. That night IBM dropped substantially and opened about 100 the next morning. When options opened, my 120 which should have been worth 19 1/2 when the stock was at 100 1/2 was bid 19 ask 19 1/2. It had no time value 6 weeks prior to expiration. The stock started rising and I got tired of playing games with the marketmakers, so I bought the stock at 101 and exercised the put because I couldn't sell the put for close to what it was worth, and I wasn't about to give up .50 per share. Puts and Calls are not opposites. They have different characteristics, the most noticable being the rapid loss of time value on the put. I have a theory which says sell calls on stocks with little or no dividends and sell puts on stocks with high dividends. This is because a call should never be exercised except just prior to a big dividend, and a put might not be exercised if a big dividend is coming through soon.