Thursday, November 26, 2009

[TheOptionClub.com] Re: Basic Calendar Question

 



Your best way to realize/see the differences between these stocks is to 'standardize' the option chain of each underlying by dividing the entire chain (put and call prices and the strikes all for the same month) by the current price of the underlying stock. The resulting standardized chains will illustrate to you the (nonlinear) pricing-effect of the volatility, giving you the relative costs of the options in relative terms to the percent at-the-money and out-the-money strikes.

For example (all with approximate round-offs) : FSLR is currently $120.97, with ATM IV 55%.
The Dec 130 call is nearly 7.5% out-of the money and has a relative price of 2.28% ($ 2.75/$121).

Compare this to, say: GOOG, currently at $584.75, with ATM IV 22% .
The Dec 630 call is also nearly 7.5% out-of-the money, but it has a relative price of only 0.22% ($1.25/$585). Note that in order to match on the FSLR volatility, the price of this GOOG 630 Call option should be about $13.3.

You can do the rest of the calculations.

--- In OptionClub@yahoogroups.com, "Peter Gum" <peter.gum@...> wrote:
>
> Take look at the premiums on things like AMZN, GS, BLK and IBM, for example.
> The absolute amounts are substantial, though I have not done the
> money-at-risk or ROI calculations. An enlightening exercise can be to
> compare the return on the spread with the premium on a comparably priced (to
> the spread) stock. Spreads of any sort look attractive sometimes.
>
>
>
> phg
>
>
>
> -----Original Message-----
> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
> Behalf Of billb_
> Sent: Monday, November 23, 2009 9:37 AM
> To: OptionClub@yahoogroups.com
> Subject: [TheOptionClub.com] Re: Basic Calendar Question
>
>
>
>
>
> I don't understand what price has to do with any strategy to be quite
> honest. If price of the underlying gave you an edge, wouldn't that be arbed
> away?
>
> --- In OptionClub@yahoogro <mailto:OptionClub%40yahoogroups.com> ups.com,
> "drrobhansen" <robhansen5252@> wrote:
> >
> > I had heard either during a webinar or maybe in a magazine that calendar
> spreads are best put on with high priced stocks. Is there anyone that would
> explain to me why it would be advantageous? Or maybe I'm just mixing this up
> with some other strategy?
> >
> > Thanks,
> > RFH
> >
>

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