Logical Progress Advancing a Little Bit Every Day

12Jun/130

INTC Covered Calls Follow Up, Market Declining Now

After two down days we're starting to get into a reasonable position on these INTC options.

As a preface, there are formulas that explain these pricing phenomena; the market makers and algorithmic traders are using them, except they've plugged them into computers. I'm not a mathematician, and I don't really make option trading decisions based on options pricing models, except when I'm using a black-scholes calculator to figure out if the market is under/overvaluing option premiums. The problem I have with using those is that implied volatility and be measured and derived in so many ways; it's IV that determines the bulk of these pricing models. What I instead choose to do is look at what the market is offering and what I'd be willing to take. I wouldn't write a call if the premium and assignment profit weren't worth it, like I did with those Ford weeklies.

Market is closed now for Wednesday June 12th. INTC closes at $24.46 per share, a pullback from $25.01 on Monday's close. My June $24 calls closed at an ask of $0.68. We're looking at a $0.22 time value premium for a week and a half before expiration. Two days ago, the time value was $0.12 per share. Now that the stock is less in-the-money, the time value premium tends to increase as the delta increases. It's still in the money, but just not as much, so delta impact has already set in on its fall from $25.01 to $24.46, and now delta is greatly reduced as it gets closer to both the strike price. The delta on the June $24 is 0.6841, lower than Monday. [I'm sorry, I'm looking through my notes and I definitely didn't record the delta on Monday, that's crucial for showing the comparison, but trust me, when INTC was $25.01, the delta on that call was higher than 0.80.]

The frustrating part for the option writer that really wants to hold the stock is that the intrinsic option value is now equal to his sell price, presenting an opportunity to get out at a break even, but there's also $0.22 of time value! This option writer is still in the red! Unless the stock pulls back to $24 in the next seven trading days I either have to roll or say goodbye to the stock.

I'm still counting on further pullbacks. I'm loving the current devaluation. It makes my portfolio look kind of sad, but it also gives me lower entry points.

Can't wait to see what INTC does next week

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