Tech Stock Options Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Tech Stock Options

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: gladman who wrote (58476)	8/5/1999 10:31:00 AM
From: broken_cookie	of 58727

Dave, Sorry I took so long to respond. If not thru implied volatility then what tools are available to determine how 'well' the specialist will move the calls? As far as other tools go, have you come across the max pain theory? The theory goes something like this. Writers of options are the "smart" money and buyers are the speculators. The buyers usually get taken to the cleaners. If you write a polynomial which sums the total value of all long puts and calls and set it to zero, that is the point which the underlying will tend to gravitate towards expiration. It needs to be tested. Works well for some stocks and poorly for others. As with all TA tools, it sucks with illiquid positions. I remember that it used to peg MU to the dollar for a while. Anyway check out this site. Good other stuff there as well. Look for "max pain". ez-pnf.com I guess my question is - can I determine based on implied volatility how strongly or poorly the calls will move if there's significant underlying movement? If you recall the original post which started this discussion, it had to do with buying short term options before earnings. My point was that implied volatility was high and likely to diminish quickly after major anticipated news. For a specific example, I once owned at the money DELL calls (short term) that hardly moved at all after earnings even though the earnings were blow out and the underlying went up 8% ($5). Implied volatility is determined by taking the price of the option and all the other deterministic variables and plugging them into the Black-Scholes (sp?) model and solving for volatility. Some people argue that buying options that are more expensive than the theoretical value is the way to go because they are more expensive for a reason. Others try to pick up undervalued options looking for the home run. So back to the question. Implied volatility (IMHO) contains a product of how much the option might move * probability of that happening. I have no way of solving for individual terms. And buying short term options before major news has been a losing game for me. Hoped that helped. Rich PS Any option trader should own (and read <g>) Larry McMillan's "Options as a Strategic Investment"

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next