On the beta question, Frank, I actually understood you to be saying it to mean exactly what the quotes were. So there was no misunderstanding. Unless your silent critic wishes to offer another explanation.
My question, unasked, about that quote was different. What, and this should go to anyone that might understand, is the relation between stock betas and option premium prices? Is it the case that high beta stocks get high option premiums? (I seem to have read that somewhere.) If that is the case, I can imagine why that is so--more unpredictability for the option buyer/seller, should increase the reward. But is that the case?
And, then, of course, there is the option premium pricing issue. I vaguely understand that's extraordinarily complicated, have been led to believe that Merton, Scholes, and or Black, but perhaps it was just Merton are responsible for the math that is used and that one, two, or three of them received Nobel prizes for that work. It's, of course, off topic to discuss whether that was wise, whether offering the Nobel for economics is wise, whether offering it to so many Chicago economists is wise, etc. (g) Whoops, just have to stop before I get too worked up.
Oh, before I stop, I wish to thank everyone who has responded. Thinking this through genuinely helps. As I've said before, the logic for writing calls takes some getting used to. I've discovered if I talk each scenario through carefully with my wife, I begin to see what I don't know. Doing the same here, with folk who know their way around the ballpark is exceptional. Not only saved me money but gave me the confidence to actually do it.
John |
