I sold it for $3.49, when IWM was $75.95, so all of that was extrinsic value.
Now that IWM is trading at $78.20, the call is selling for $4.44, which means it only has an extrinsic value for $2.24.
So, as I see it:
| $0.05 | = Captial gain (i.e. stock moving from $75.95 to $76 strike price) |
| $1.25 | = Change in extrinsic price (i.e. earned time decay) |
| $0.95 | = Actual change in call price |
| ------- | -------------------------------------------------------------------- |
| $2.25 | = Actual change in stock price |
With 8 weeks until the option expires, I think I can earn a lot more time decay selling weeklies than the $2.24 of extrinsic value that remains on the option. For example, next week's $78 call currently has $0.86 of extrinsic value. It also means I earned about $0.18 per day of time decay already, with under $0.04 per day of time decay remaining.
But it also has me wondering -- why such a huge change in extrinsic value over a single week on an option that was 9 weeks away from expiring? Is this a regularly occurring phenomenon that can be taken advantage of? How does one recognize or predict when such a shift might happen?
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