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A more specific example could be to buy a stock, buy a put and sell a call,
both a strike away from the price of the underlying. A typical collar. An
argument against collars is that they inherently limit profitability of any
increase in the price of the stock above the strike price of the sold call,
which is correct. However, an assumption that I'd like test is that the
price of the stock will not increase within 30 days by more than the strike
of the call minus the price at which the stock as purchased. If this
assumption is correct, then in statistical terms what is objectionable about
a collar in this context?
I'm searching for ideas on how to corroborate a generally accepted
assumption that option premiums decay faster than an underlying may change
in price (in relative terms). For example, given a stock priced at $50 and
its 55 call with 30 days to expiration priced at $1.00, how many times does
the option expire at a premium of $0.00 and how many times does it expire
with an intrinsic value. I'd expect underlyings with different volatility
levels to have different stats, but that may be proven to the contrary.
Thanks in advance.
Colin West
cwest@xxxxxxxxxxxx
303-785-1702 (direct)
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