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  • Writer's pictureTrusha Desai

Theta tells time

Updated: Feb 20

If you have an investment strategy of buying calls, it suggests that you are bullish on the stock. What would your strike price be? What would your expiration date be? Keeping in mind the Greeks, such as theta (time value) and our understanding thereof, we may decide to buy calls that expire three months, six months or a year from the current date. We needs must remember that call options that have a twelve-month expiration period maybe expensive.

When we think of such longish expiration periods, we wonder what is the reasoning and rationale behind weekly options? Who would ever buy weekly calls? Or do they write weekly covered calls?

When we attempt to study the volume and open interest of option trades, we are unable to decipher without stock trader backing whether the day’s volume focused on purchase or sale of the option under consideration. We can study the volume of a stock and estimate whether the stock was overwhelming bought or sold at particular periods of the day. There are even more sophisticated investment instruments available that will advise us of the dollar volume being traded during differing periods of the day. This information is not readily available for options.

Therefore, when we attempt to invest after-tax income in options, we must remember that our investment may result in a complete loss. We may be marginally fortunate if we walk away with a minimal loss if we perceive that our anticipated bull has turned into a bear for psychological, emotional, financial or economic reasons. Moreover, unlike securities which may provide us with a steady(?) dividend income, no dividend income is obtainable from stock options.

I do extensive investment analysis of your portfolio. I also provide a second opinion on your investments after analysis. I have long-term experience in preparing convoluted capital gains (losses) schedules for taxation purposes.

Please reach out for your professional bookkeeping, payroll, management consulting, capital gains, personal and corporate tax requirements to me

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