How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 459.86

+0.7%

Jan 16 9:30 AM EST

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To: Jean M. Gauthier who wrote (26019)	7/14/1999 11:00:00 PM
From: Dwight E. Karlsen	Read Replies (1) of 74651

Jean, I liked PMSWitch's explanation of option pricing. I've figured out the same things over time through the school of hard knocks. As you stated, "we use this to our advantage", or we should anyway. MSFT options are low volatility compared with the majority of tech stock options, IMO. Another way to look at options pricing is that you are betting against the option MM, who has a trader(s) in the option pits setting the pricing. If the stock moves in a direction different than the MM thinks, in general you win. But when a stock increases (or decreases) more than normal in prior days, premiums increase on both puts and calls. That way the option MM has extra "insurance" due to the fact that nobody really knows where the stock will go near-term (uncertainty). Therefore you reached the right conclusion, the best time to buy is after a period of several days (even better, weeks) of little price movement. The Philly exchange has a great site, which shows how volatile the pricing is, in addition to plain old expensivness, of your options: fast.quote.com type in your stock symbol to get the option chain. Try the different formats.

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