Subject: Re: Check Capital Management BRK Options Stragegies
My intent was just to put a numeric gloss on the idea of considering option writing only when prices are generally good in the market.


The usual model for option prices does not account for whether the underlying stock is cheap or expensive. The future stock price is assumed to be a Gaussian random variable, with implied volatility representing the normalized standard deviation.

When BRK.B eclipsed $370 last month I wrote ATM covered calls, without checking whether the implied volatility was above a threshold. My criterion was: did I expect the price of BRB.B to be above $370 + premium at expiration.

It seems to me that when the stock is perceived to be expensive there will be relatively more call sellers, which will push the implied volatility down. (That's my intuition, not my observation).

Question is: how does that downward premium pressure compare to the effect of the overall option market volatility?