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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Why are the premiums you are willing to pay sometimes below the premium available that day?

Markets have recently been much more volatile than normal. That volatility is good for option positions, but you have to be careful when and how you get in. It is important not to overpay on a premium. So stick to my recommendations -- they work.

However, I do understand that options going out to 2011 sometimes trade much higher than my recommendations. Given market volatility, investors have been willing to pay higher premium costs.

The intrinsic value of these longer options is much higher than shorter-termed options. So while it is possible to pay the higher premium and hope for the best, chances are you will be holding the option much longer to get your win.

I prefer not to play it that way. I am pricing my recommendations so that -- if filled -- they have a better chance at turning around for a quick win. I would rather have fewer quick wins vs. lots of open positions on the board that require maintenance and additional capital to average down, which is necessary as long as the market knows no downside limit.

To illustrate what I mean, let's look at several wins over the past year. These positions paid $1,000 each after no more than two full days in play:


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Combined, these positions employed $42,800 in capital. These quick wins, together, were in play a total of seven days. Taken together, these six plays paid out $6,000, with the average invested capital per day in play being equal to $6,986 (including only positions open at the end of the day).

Now, compare that to a single investment in a call option on

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, which tied up a weighted average of $24,285 in invested capital for 65 days, in the end paying out only $4,200.

So, I have narrowed my focus and am sticking to the rules. The fill rate will drop some, but I will have quicker, easier wins and less capital tied up in open positions.

Lenny Dykstra manages Nails on the Numbers, a subscription service sold by Mr. Dykstra is 95-1 in his options picks. Click here for a free trial to Nails on the Numbers. Mr. Dykstra writes regularly about options trades for


At the time of publication, Dykstra had no positions in stocks mentioned.

Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."