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To: mishedlo who wrote (195679)10/6/2002 11:11:40 PM
From: BDR   of 436258
 
<<Dale you are missing the point.>>

I am? I guess I am not sure what the point is.

<<Hold enough S&P 600's to march and have a close at 600 or higher and you lose it all.>>

Well, hold even one option on any underlying at any strike to expiration and if it closes out of the money you lose it all. Do you know of an example where you don't?

<Earlier this year there were some strikes on DJX put options that made you money at expiry EVEN if the DJX did not fall one bit.>>

That is what I demonstrated with the OEX example. Friday OEX closed at 403.22. According to my broker's quote I could buy the March 600 XEO Put for 195.50.

To match your example let's say OEX closes 6 months from now on March 20 also at 403.22. A 600 put will have a cash value of 600 - 403.22 = 196.78. My cost was 195.50; ignoring commissions my profit would be 1.28 and OEX did not fall one bit. Whether it is worth tying up that much capital for that little a profit is another matter, but the example still demonstrates the point you were making about the DJX.

European style, deep in the money options often trade at a discount to their intrinsic value because they cannot be exercised early. The higher the short term interest rate the greater the discount. The position can, of course, be closed out early by selling the option but you will likely be selling at a discount, too, unless you are very close to expiration so you can't capture the discount that way.

What is Tommaso's point that I am missing?
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