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Technology Stocks : America On-Line: will it survive ...?
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To: James F. Hopkins who wrote (2728)4/6/1997 2:07:00 PM
From: WryBoy   of 13594
 
Hi Jim: As far as the fat option premiums are concerned, I like
to try to get an implied volatility < actual vol before going long with options. Often this is a luxury, of course. I've also learned
the hard way, that buying in-the-moneys late in the life can often
be safer. True, you get less leverage, but intrinsic value doesn't
waste away.

Here's my after-the-fact option analysis: AOL has a 4 day statistical vol of 95 and a 90 day vol of about 75. AOL closed Friday at 48 3/8 and the AOLPJ's closed at 3 3/8 A. Using Black/Scholes in reverse
to search for implied volatility, the implied vol of AOLPJ is only about 66, so even though the premium is fat, one could argue it wasn't fat enough. The put premium lightness is due to the nearly 3 point runup on Friday. I have fair value on the PJ's right now at 3.72,
so I think I have a good position on, considering my directional bias
and the implied vol of the options.

See you down in the mid to low forties, and soon.

Phil
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