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Question about WFC options.


ECCO
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Its been a few years that I look at options but start buying-selling some 2 years ago only. So I consider myself beginner to this.

 

I just wonder what others think about this:

 

I have  jan2013 WFC 20$ call that I can sell this morning for 9.80$ and switch them for jan 2014 that I can buy at 10.55$. Is it something Im missing here? The cost to switch and gain 1 year doesnt seem expensive to me. Again, do i miss something? What do you guys think about that?

 

Thank you. 

 

 

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One thing the Black Sholes model does well is to distinguish relative value in a set of options on the same stock.  One of the best ways to do this is to compare the difference in implied volatility (IV) of what you are thinking of buying.  WFC is a good bank that should tend to increase in value over the years.  Therefore, the longer dated call may be the better buy, provided that its IV isn't higher than the shorter dated call.  Many data sources will provide the IV of options displayed.

 

You might also consider WFC's tarp warrants that have been discussed on this board.  These are very long dated call options and may be an even better buy.  You can calculate their IV by using an options calculator.  I like to use the Wolfram Alpha options calculator.  :)

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