Dykstra: Volatility Drives Up Premiums

Market volatility plays a major role in the premiums on options. A glance at the Chicago Board of Options Exchange's Volatility Index, which gauges market risk, shows just how much: From August 2007 to September 2008, the VIX stayed within a range between 17 and 30.

With increasing market turmoil, the index began to soar in mid-September to a range between 50 and 80, and options premiums rose along with that higher expectation of volatility. By December, many of the picks in my deep-in-the-money call options strategy were being cancelled because of failure to fill at the price I wanted to pay.

My strategy, which you can follow through my Nails on the Numbers newsletter, has given me a win record I'm proud of: 95-1 to date. The rise in market volatility leads me to today's question from a subscriber:

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