Explore Your Options | SEP 2011
Explore Your Options
Is selling an at-the-money (At m) or outof-the-money (Ot m) option really better than selling a contract that has more premium attached to its market price due to its intrinsic worth? That’s a tricky one. As for which type of sale constitutes the “better” one, we do know selling extrinsic or time premium associated with At m or Ot m has the advantage of time decay. All options do lose 100% of their extrinsic value by expiration. However, whether a contract lands in or out of the money and by what amount can prove to be the more important factor in calculating actual profits and losses.
by Tom Gentile
Technical Analysis of STOCKS & COMMODITIES
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