1. After dropping out of a higher stock option trading range,
Dell trades down throughout the months of December 2002, January
2003 and into mid-February 2003 before bottoming out. During
this period of time, the drop was a low volatility, gradual
one in which the stock loss could have been well offset by premium
2. After rebounding off a low around $22.50 in mid February,
Dell rebounded quickly to the $26.00 -$27.00 level where it
consolidated until mid-March. They were stock option trading
in a tight band until the stock starting to trade up.
3. After the consolidating period, Dell began a slow, deliberate
rise over the course of the next 9 months or so, with most months
showing an overall stock option trading range of $2.00 or less.
The long, slow, step like growth pattern can be seen both in
the daily stock option trading ranges, as well as in the monthly
stock option trading
ranges. This is very favorable to writing
Conclusion: Dell spent the better portion of nine months trading
up in a manner that is suggestive of decreasing volatility.
Because the stock was in an up trend, and a gradual one at that,
a buy-writer would have been able to profit from capital appreciation
as well as a having a good chance at seeing a positive return
in terms of the collection of premiums.
Furthermore, during Dells down cycle, the stock traded down
slowly enough to be able to receive several months of premium.
This should have, at least partially, offset enough of the loss
to allow the trader time to profit from the subsequent recovery.