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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Bill/WA who wrote (7870)	7/12/1998 12:01:00 AM
From: dazzled	Respond to of 14162

Bill - they forgot to add that if the option is $5 OUT of the money that the option will only go up about 25-33 cents if the stock goes up a dollar(this could vary somewhat more depending on volatility of the stock and the stock price). then one has to consider that for each day that passes the option is losing a little value; so if takes a few weeks to move the stock up by 1.50 one might not make anything on the option(maybe this is the kind of situation they were discussing in PitBull). on the other hand, if the stock goes up by a dollar immediately, then the option is likely to go up at least 25 cents eg, with Intel at 80 and 85 call bought at 2. then if stock goes to 81 today, the 85 call might be 2.25 or 2.31 which would be a nice percentage profit on the option's cost before one considers commissions dz

To: Bill/WA who wrote (7870)	7/12/1998 12:18:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Hi Bill, Good common question about options Bill. One of the most difficult mathematical concepts for every new investors to comprehend in options is the pricing vs. the actual price movement of the underlying stock. It is important to learn the dynamics since it will give you a much better feel for the probability of reaching a certain option price and/or gauging how much time you will need. Time value (or the lack of it) followed by intrinsic value (stock price) in options is what usually burns you (or your CC call buyers). You can be right about the direction of the stock price move but the amount of time it will take is really an unknown variable. With practice and study you can get better at predicting it! What you are asking can be summarized in one word! DELTA! McMillan's book defines delta as,"the amount by which an option's price will change for a corresponding one point change in price by the underlying entity. Technically, the delta is an instantaneous measure of the option's price change." Delta values change from day to day depending on what is happening with the stock. Doug's web site will calculate the delta's for any option at webbindustries.com. Another way to learn about the dynamics is downloading the free software called Option Toolbox from the CBOE at cboe.com in the educational section. It will give you a learning experience by allowing you to change the time, price, etc. in the interactive tutorials so that you can actually see the impact on the profit/loss "what if" strategies. So, you can apply just about every combination option spread and straight option pricing model. Hope that will help you to understand!