How does one measure the decay of an options time value? Not real knowledgable on the Greeks, I'm thinking that may be the answer... Anyways, I've been writing weekly covered calls OTM letting them expire (if underlying moves ITM, roll it to next weekly). I'm trying to calculate whether it might be more beneficial to buy back the option tomorrow (it's is relatively worthless compared to what I sold it for) & then sell the next weekly capturing additional weekend time value, if that exists? Any input is appreciated.
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Option Premium Time Decay?
- Thread starter msd87
- Start date
Quote from msd87:
How does one measure the decay of an options time value? Not real knowledgable on the Greeks, I'm thinking that may be the answer... Anyways, I've been writing weekly covered calls OTM letting them expire (if underlying moves ITM, roll it to next weekly). I'm trying to calculate whether it might be more beneficial to buy back the option tomorrow (it's is relatively worthless compared to what I sold it for) & then sell the next weekly capturing additional weekend time value, if that exists? Any input is appreciated.
Compare Theta.
Quote from msd87:
How does one measure the decay of an options time value? Not real knowledgable on the Greeks, I'm thinking that may be the answer... Anyways, I've been writing weekly covered calls OTM letting them expire (if underlying moves ITM, roll it to next weekly). I'm trying to calculate whether it might be more beneficial to buy back the option tomorrow (it's is relatively worthless compared to what I sold it for) & then sell the next weekly capturing additional weekend time value, if that exists? Any input is appreciated.
Have you backtested either strategy for the past 12 years?
Do you think that you get that weekend time value for free?
You do realize that a covered call is an identical position to naked short a put? Shorting puts saves you the spread and commissions on the underlying. Shorting puts is not a good long term strategy.
What do you do when the underlying goes way down?
The options market is dominated by professional traders and you are trading against them. Trading options without knowing the Greeks and understanding option behavior can be very costly.
No, it's not an idential position to a short put once you factor in your own financing and tax considerations. I am also pretty sure that shorting weekly upside puts would show a positive expectation, albeit with some pretty hefty drawdowns.Quote from jeb9999:
You do realize that a covered call is an identical position to naked short a put? Shorting puts saves you the spread and commissions on the underlying. Shorting puts is not a good long term strategy.
Quote from msd87:
How does one measure the decay of an options time value? Not real knowledgable on the Greeks, I'm thinking that may be the answer... Anyways, I've been writing weekly covered calls OTM letting them expire (if underlying moves ITM, roll it to next weekly). I'm trying to calculate whether it might be more beneficial to buy back the option tomorrow (it's is relatively worthless compared to what I sold it for) & then sell the next weekly capturing additional weekend time value, if that exists? Any input is appreciated.
Don't roll them, let them get called away and sell a put for the next month instead of a covered call. weekend time value is taken out friday.
Quote from jeb9999:
Have you backtested either strategy for the past 12 years?
Do you think that you get that weekend time value for free?
You do realize that a covered call is an identical position to naked short a put? Shorting puts saves you the spread and commissions on the underlying. Shorting puts is not a good long term strategy.
What do you do when the underlying goes way down?
The options market is dominated by professional traders and you are trading against them. Trading options without knowing the Greeks and understanding option behavior can be very costly.
no different if your naked the stock.
I sell puts and calls on IWM and SPY every month.
I don't like selling options on one stock, better to be diversified with the ETFs instead.
Assuming it's the same strike, compare the time premium per day for the respective options, taking into consideration the commission costs.Quote from msd87:
I'm trying to calculate whether it might be more beneficial to buy back the option tomorrow (it's is relatively worthless compared to what I sold it for) & then sell the next weekly capturing additional weekend time value, if that exists?
Quote from jeb9999:
Have you backtested either strategy for the past 12 years?
Do you think that you get that weekend time value for free?
You do realize that a covered call is an identical position to naked short a put? Shorting puts saves you the spread and commissions on the underlying. Shorting puts is not a good long term strategy.
What do you do when the underlying goes way down?
The options market is dominated by professional traders and you are trading against them. Trading options without knowing the Greeks and understanding option behavior can be very costly.
Have not backtested strategy for 12 years, don't want to wait that long to get involved (j/k I see you are talking about previous data).
That is the reason I posted, was to try and figure out how the weekend time value is factored in, if at all & if its worth the buy back and commissions to capture it.
I did know that they are in essence the same position, you have a liability of being long the stock in both strategies (short puts & covered call). I would rather own the stock outright tho (Dividends).
I failed to mention that when I initially bought the stock I purchased some LEAP puts with it for downside protection, January 2013. So I decided why not try to sell & let expire some weekly calls to pay for the premium of the put. Should have it paid off by early 2012 @ current pace. I could let the stock get called, but want to maintain my long position since I am holding the 2013 puts.
I think the biggest downside in this strategy is if the stock skyrockets in a single week, blowing through my call.. But as long as it doesn't run too far I can always catch back up to it via rolling out and up, sometimes costing additonal $.
Quote from msd87:
Have not backtested strategy for 12 years, don't want to wait that long to get involved (j/k I see you are talking about previous data).
That is the reason I posted, was to try and figure out how the weekend time value is factored in, if at all & if its worth the buy back and commissions to capture it.
I did know that they are in essence the same position, you have a liability of being long the stock in both strategies (short puts & covered call). I would rather own the stock outright tho (Dividends).
I failed to mention that when I initially bought the stock I purchased some LEAP puts with it for downside protection, January 2013. So I decided why not try to sell & let expire some weekly calls to pay for the premium of the put. Should have it paid off by early 2012 @ current pace. I could let the stock get called, but want to maintain my long position since I am holding the 2013 puts.
I think the biggest downside in this strategy is if the stock skyrockets in a single week, blowing through my call.. But as long as it doesn't run too far I can always catch back up to it via rolling out and up, sometimes costing additonal $.
If the price is right, I would just roll the options. Weekly options are very finnicky and the prices change a lot.
I don't know how good the street's models are for short dated options. At my firm, they were pretty terrible.