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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: William who wrote (1763)	8/3/2001 7:19:07 AM
From: edamo	of 5205

william..."black-scholes" the wild card in any option price calculation is the "implied volatility"....this is a component that can't be calculated, much unlike the "historic volatility" used in options pricing models.... the "implied volatility" is more an intangible, almost psychological factor...it can't be calculated as it changes instantly based on perception and psychology, but can be viewed as an anomaly that a prudent option trader can take advantage of... e.g....qcom comes out with news that drives the share price rapidly upward....the "implied volatility" on the qcom options would inflate in a disproportionate manner....in fact, most times the option price will peak due to this rush to own, and oft times pull back as the share price continues to rise....the opposite holds true with puts and a rapidly decreasing share price.....if you can catch the option on the write, at or near the peaks you get a bonus cushion effect... qcom has been stable, and the implied volatility additive is not much in either direction.... just my concept...others may disagree....works for me... ed a.

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