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+Chpter 3: Call Buying 107 
+away that portion of the option's price as expiration approaches. However, when an 
+option has a considerable amount of time remaining until its expiration, the more 
+important component of the option value is really volatility. If traders expect the 
+underlying stock to be volatile, the option will be expensive; if they expect the oppo­
+site, the option will be cheap. This expensiveness and cheapness is reflected in the 
+portion of the option that is not intrinsic value. For example, a six-month option will 
+not decay much in one day's time, but a quick change in volatility expectations by 
+option traders can heavily affect the price of the option, especially one with a good 
+deal of time remaining. So an option buyer should carefully assess his purchases, not 
+just view them as something that will waste away. With careful analysis, option buy­
+ers can do very well, if they consider what can happen during the life of the option, 
+and not merely what will happen at expiration. 
+CALL BUYERS' FRUSTRATIONS 
+Despite one's best efforts, it may often seem that one does not make much money 
+when a fairly volatile stock makes a quick move of 3 or 4 points. The reasons for this 
+are somewhat more complex than can be addressed at this time, although they relate 
+strongly to delta, time decay, and the volatility of the underlying stock. They are dis­
+cussed in Chapter 36, 'The Basics of Volatility Trading." If one plans to conduct a 
+serious call buying strategy, he should read that chapter before embarking on a pro­
+gram of extensive call buying. 
+FOLLOW-UP ACTION 
+The simplest follow-up action that the call buyer can implement when the underly­
+ing stock drops is to sell his call and cut his losses. There is often a natural tendency 
+to hold out hope that the stock can rally back to or above the striking price. Most of 
+the time, the buyer does best by cutting his losses in situations in which the stock is 
+performing poorly. He might use a "mental" stop price or could actually place a sell 
+stop order, depending on the rules of the exchange where the call is traded. In gen­
+eral, stop orders for options result in poor executions, so using a "mental" stop is bet­
+ter. That is, one should base his exit point on the technical pattern of the underlying 
+stock itself. If it should break down below support, for example, then the option 
+holder should place a market (not held) order to sell his call option. 
+If the stock should rise, the buyer should be willing to take profits as well. Most 
+buyers will quite readily take a profit if, for example, a call that was bought for 5 
+points had advanced to be worth 10 points. However, the same investor is often