Hey Guys,
The market moved a lot over the last 24 hours only to end up right back where it started yesterday. The first 20 minutes this morning were fascinating to watch. It was like a tug of war between the bulls and the bears. Then finally the bears pulled away with a victory (for the time being at least).
I closed a couple trades today that reached their time limits: COP and CVX. Both closed for a bit under breakeven.
I picked up some new positions today. They're all in the airline industry. In the main account I bought stock for DAL, and I bought the options for it in the extra options account. I picked up shares of UAL stock in the low-priced account.
Yesterday midday I get into an options trade for CNC. It was a deep-in-the-money (DITM) single call option. I talk in my videos about how the DITM options are nice because they don't have a lot of "extrinsic" value. That means you aren't paying a lot of premium to get access to the option. With CNC, for example, I paid 5.10 for the 76-strike option. The price of the stock at the time I bought it was 80.92. So the "intrinsic" value of the option was 4.92 (take the stock price of 80.92 and subtract the strike price of 76). I only paid 18 cents more than that for my option, which means the extrinsic value was 18 cents.
The extrinsic value is the part of the option's valuation that goes down to zero as the option expires. When the option reaches its expiration, the only value left is its intrinsic value. By paying such a small amount up front for the extrinsic value, it means very little of the value of the option will disappear as time elapses. This increases the odds of victory compared to buying an option that has a lot of extrinsic value. The tradeoff is that the profit ratios can be lower since you have to pay more up front per contract to buy a DITM option.
If you have any questions or feedback, I'd love to hear from you.