A Study of Covered Strangle in a Rather Neutral Market Message Board

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Strategies & Market Trends : A Study of Covered Strangle in a Rather Neutral Market

QCOM 168.90

0.0%

Oct 4 9:30 AM EDT

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To: PAL who wrote (19)	8/23/2001 7:37:23 PM
From: PAL	Read Replies (1) of 23

August 23, 2001 after the close. Dow 10,229.15 -47.75 -0.5% Nasdaq 1,842.97 -17.04 -0.9% S&P 500 1,162.09 -3.22 -0.3% QCOM 62.95 -0.80 -1.25% The stock was strong in the morning reaching to a day high of 65.85, but then retreated. Make sure to think twice if I want to sell options expiring in September since it is a triple witching month: it is known for heavy trading volumes and increased market volatility (especially about 30 to 60 minutes before the close). Also remember that dollar for dollar you get more money buying longer term option. For example you could purchase jan02/60 (expiring in 5 months) put on qcom for $ 800/contract. By the same comparison, you could purchase apr02/60 (expiring in 8 months) put on qcom for $ 1,000/contract. An additional $ 200 for 3 more months means more bang for your buck. Calculate it differently: jan02/60: $ 160/month apr02/60: $ 125/month Option is a time-decay asset, they decay or lose value as they approach expiration. A large part of the decay comes in the final month before expiration (some call it front month). Buying option that expire in more than six months gets you pass this "decay curve". If you I am a seller of an option, make sure that I remember the above. Option trade in nickel increments below $ 3 and dime increments above $ 3. The problem with option is that in addition to the large spread between bid and ask (around 8%), the commission is considerable more than that for equity trade.

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