Telebras (TBH) & Brazil Message Board

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Strategies & Market Trends : Telebras (TBH) & Brazil

TBH 0.437

+9.3%

Jan 2 3:59 PM EST

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To: Ted Jackson who wrote (397)	11/12/1997 8:06:00 PM
From: Aaron Weiss	Read Replies (1) of 22640

What I do is use Option Vue (or some comparable option valuation software) to generate a profit graph. Given the purchase prices of the put and call, how much will the stock have to have moved by expiration to render the combination profitable? If the stock it at $85 and you buy both an 85 put and call for $15 each, the stock would have to have moved +/- $30 (to $55 or $115) by expiration just to break even. If the stock moves a bit less than this amount BEFORE the expiration, you'll also break even. The graph produced by Option Vue makes it abundantly clear exactly how much the stock must move (and in how much time) in order to acheive break-even. Generally straddles are not good bets after a violent move since the implied volatility is so high. I was considering buying and OEX straddle in 1987 right after the October crash, but the premiums were so outrageously high, the market would have had to rebound (or fall) another 30% or so in the next month just to break even! I haven't run the numbers for the TBR options, but I suspect the situation is similar.

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