Here's the situation about ten minutes after the open:
|MRK at $51.49|
$0.00 intrinsic value but someone thinks there's $0.22 worth of time value left in it (all time value estimates here are based on the "ask" price). Ten minutes later the $51.50 is in the money:
|MRK at $51.55|
That call has $0.05 of intrinsic value and now $0.17 worth of time value. One hour into the day (10:30 AM):
|MRK at $51.27|
After reaching a high of $51.72 MRK has drifted down and the call is now out of the money. Just $0.10 in time value remains. All three major indices are just barely positive. After yesterday's big gains I could actually use a dip to pick up some volatility and increase options premiums for Monday.
|MRK at $51.40|
Out of the money by a a dime now but there's still $0.13 of time value. And there's been a good bit of trading too, with 1,213 contracts changing hands.
|MRK at $51.30|
With the underlying now $0.20 out of the money time value has evaporated. Only a dozen contracts were traded in the last hour.
|MRK at $51.22|
A few more contracts traded, a little more time value evaporates. The fact that there is still a bid suggests that someone thinks there's a small chance MRK will rise to close higher than $51.52.
If the market is going to rise into the close it should start moving in the next hour or so.
|MRK at $51.33|
With 90 minutes to go in the trading day there's no longer a bid for the $51.50, though another 10 contracts did trade in the last hour. The major indices have been essentially flat lined for quite a while now so I'm pretty confident I won't be needing to roll out today.
|MRK at $51.44|
And this is why we watch into the close. The market finally started to move up a little (the S&P 500 is up 0.28%) bringing MRK along with it.
|MRK at $51.48|
Looks like this one's coming down to the wire! If MRK is this close to the money at 3:45 I'll roll out. It takes some time to execute a trade and I want to be sure to keep my MRK.
And there we have it. I rolled out 3 weeks and up a dollar for a net premium, including commission and fees of $386.20. I'm really happy with Schwab's service this afternoon; the order filled almost instantly.
As it turns out MRK closed at $51.48 so I didn't really have to roll out; but there was no way to know that at 3:45. And best of all, even though MRK is still $4.99 below my cost basis, the whole portfolio is now green by a whopping 0.12%