Throughout the Trade Month, I get many phone calls from clients asking why one of their positions has increased or decreased dramatically in price. Stock prices reflect a company’s current value as well as a projection of the future. Since the projection of the future is constantly changing as each day passes, stock prices are always fluctuating. To understand why a particular position moves dramatically, we first have to see why stock prices move in general; supply and demand.
Winter: The Season Before Spring
Winter. The word alone brings images of kids playing in snow (unless you’re from Texas), Santa Claus, and a plethora of religious holidays such as Christmas, Hanukah, and Kwanzaa. However, to Snider Method investors, the word “winter” causes people to cringe and have premonitions of the Apocalypse. Winter is a term used in the Snider Method to describe a position that is not able to generate any option premium. Winter positions are never fun and I get many calls from clients asking how to get their positions out of winter, if there is some way to strategize their way out, or simply sell the position and move on. However, the question you should be asking isn’t “How do I escape winter?” but rather “What are the alternatives and is it better than waiting?” There are three main alternatives: selling the position and starting over, buying more stock to reduce the cost basis, and Transmogrification.
The Greeks: From Past to Present
When people mention the Greeks, images of Zeus, Athena, and Hercules may come to mind. However, in the finance industry, the Greeks are a set of variables used as measures of risk sensitivity. The Greeks consist of delta, theta, gamma, vega, and rho. This article will provide an overview of each variable and what they represent.
Option Premiums Part II: Volatility
In the Snider Investment Method, we sell options for a premium, which is the amount we receive for selling someone the right to purchase our shares at a particular price over a given period of time. This is the second of a series, with each article explaining a different component that helps determine the premium of a stock option. The last article discussed time and how the Snider Method uses the time value to its advantage. Today’s focus will be on volatility, another important factor that determines option premium.
Option Premiums Part I: Time is of the Essence
In the Snider Investment Method, we sell options for a premium, which is the amount we receive for selling someone the right to purchase our shares at a particular price over a given period of time. This will be the first of a series, with each article explaining a different component that helps determine the premium of a stock option. Today I will focus on one of the most important factors: time value.
