34 lines
1.7 KiB
Plaintext
34 lines
1.7 KiB
Plaintext
190 • The Intelligent Option Investor
|
||
T enor Selection
|
||
In general, the rule for gaining exposure is to buy as long a tenor as is
|
||
available. If a stock moves up faster than you expected, the option will still
|
||
have time value left on it, and you can sell it to recoup the extra money you
|
||
spent to buy the longer-tenor option. In addition, long-tenor options are
|
||
usually proportionally less expensive than shorter-tenor ones. Y ou can see
|
||
this through the following table. These ask prices are for call options on
|
||
Google (GOOG) struck at whatever price was closest to the 50-delta mark
|
||
for every tenor available.
|
||
Days to Expiration Ask Price Marginal Price/Day Delta
|
||
3 6.00 2.00 52
|
||
10 10.30 0.61 52
|
||
17 12.90 0.37 52
|
||
24 15.50 0.37 52
|
||
31 17.70 0.31 52
|
||
59 22.40 0.17 49
|
||
87 34.40 0.43 50
|
||
150 42.60 0.13 50
|
||
178 47.30 0.17 50
|
||
241 56.00 0.14 50
|
||
542 86.40 0.10 50
|
||
The “Marginal Price/Day” column is simply the extra that you pay to get
|
||
the extra days on the contract. For example, the contract with three days left is
|
||
$6.00. For seven more days of exposure, you pay a total of $4.30 extra, which
|
||
works out to a per-day rate of $0.61. We see blips in the marginal price per
|
||
day field as we go from 59 to 87 to 150 days, but these are just artifacts of data
|
||
availability; the closest strikes did not have the same delta for each expiration.
|
||
The preceding chart, it turns out, is just the inverse of the rule we
|
||
already learned in Chapter 3: “time value slips away fastest as we get closer
|
||
to expiration. ” If time value slips away more quickly nearer expiration, it
|
||
must mean that the time value nearer expiration is proportionally worth
|
||
more than the time value further away from expiration. The preceding
|
||
table simply illustrates this fact. |