What is a easy and quick way to get an educated guess on which option is relative cheap or expensive by eyeballing the strike and month? For example, BAC december $15 call is $0.15 BAC november $15 call is $0.10 (Totally made-up number). Without doing a full calcuation, how would I get an educated guess on which one is a “better value”? Thanks
Anybody??
if the hypothetical dates above are what you want to use, paying $0.10 for 13 days and paying $0.15 for 33 days, the latter seems to be of much better value. when looking that far OTM, i prefer to pay a little more (and slightly reduce my “jackpot multiple”) for the extra four weeks of volatility.
I think you want to look at the Volatility, mainly implied vs. what you think it should be (forecasted). If the implied is higher then you think, then sell. If it’s lower, you buy. If you are looking to sell, I would lean towards the Nov. because option prices drop off dramatically towards expiration, so you would get more bang for selling the November, then when those expire, selling the Decembers.
depends on if you have an earnings announcement or other “event” in between expirations
Longer maturity call(December) would be more expensive beacuse the stock has more time to reach the strike level($15 in your case). Currently BAC is trading aounrd 14.50, I will run a quick simulation to see where the BAC price might fall in next 30 days, by just eye balling the previous month’s BAC history the average comes around 16, but that is a rough guess and the market will slide more in this quarter. So there might be good chances that you can keep the premium by selling the call. What do you mean by ‘better value’? Also what position are you taking, Buy/Sell?
edgeraz Wrote: ------------------------------------------------------- > > What do you mean by ‘better value’? Also what > position are you taking, Buy/Sell? Excellent question. Most what we do is writing options (sell)…So I guess I am trying to figure which one proivde the most premium.
most premium is in the november issue. you could probably sell the NOV one, then sell a DEC for $0.15 after the NOV one expires.
ws Wrote: ------------------------------------------------------- > edgeraz Wrote: > -------------------------------------------------- > ----- > > > > What do you mean by ‘better value’? Also what > > position are you taking, Buy/Sell? > > Excellent question. Most what we do is writing > options (sell)…So I guess I am trying to figure > which one proivde the most premium. In that case I think you should sell the November Call. The stock will have less time to reach the strike and you will have more chance of keeping the premium, But I havent done any empirical calcs to support this advice. I would atleast calculate the 15 & 45 days volatility of the stock ( assuming options are expiring EOM), and obtain the option price using them… just to feel a little more confident.
mark@dirtbags Selling the option alone will not cash that high volatility. You can collect volatily only if you do pair trades (option+stock, option+option). All else equal, longer options are more expensive because of highter theta. There are many situations when shorter dated options have higher implied vol. (announcements, oversold/oberbot situations, firesales). Input your equity ticker into this and it will give you its options and greeks. http://www.888options.com/quotes/default.jsp. Cheers, watch out. Selling options is dangerous.
dukatu2 Wrote: ------------------------------------------------------- > mark@dirtbags > Selling the option alone will not cash that high > volatility. > You can collect volatily only if you do pair > trades (option+stock, option+option). > > All else equal, longer options are more expensive > because of highter theta. > There are many situations when shorter dated > options have higher implied vol. (announcements, > oversold/oberbot situations, firesales). > > Input your equity ticker into this and it will > give you its options and greeks. > http://www.888options.com/quotes/default.jsp. > > Cheers, watch out. Selling options is dangerous. My point is, we don’t know what he wants to do. Longer options are worth more because of theta, but not on an annualized basis. If he were selling options, he could likely sell the Nov. for .10 and then come expiration, he could likely sell the Dec. for another .10 (all else being equal). So, in reality, he could be getting .20 vs. the .15 for just doing the December trade. And selling options isn’t that dangerous…
mark@dirtbags Wrote: ------------------------------------------------------- > And selling options isn’t that dangerous… second that as long as you keep things covered (conservative).
mark@dirtbags Wrote: ------------------------------------------------------- > > My point is, we don’t know what he wants to do. > We sell options (cover-call, puts). Wanted to get most premium as we can, hopefully not get putted on, don’t care too much about getting stocks call away
ws Wrote: ------------------------------------------------------- > mark@dirtbags Wrote: > -------------------------------------------------- > ----- > > > > My point is, we don’t know what he wants to do. > > > > We sell options (cover-call, puts). Wanted to get > most premium as we can, hopefully not get putted > on, don’t care too much about getting stocks call > away Then, no doubt, do the Nov’s. If they get called; good. If not, rewrite.
Thanks for all the input…I knew making up the example will confuse people. Like I said that number is totally made up, in the above case, I will go with Nov too since it is only $0.05 difference. I am trying to get a “shortcut” (if there is) to quickly eyeballing the relative values of options cross strike price and exp. month. Sorry to be such pain.
If you are quickly eyeballing things, maybe look at the Delta and days to expiration. Delta gives you a good idea (not exact probability) if the option is likely to be in the money at expiration.
^ha, cool, that helps!!