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Strategies & Market Trends : Canadian Options
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To: Jan Johnstone who wrote ()5/7/1997 6:58:00 PM
From: Dave.S   of 1599
 
I've been on vacation for the last 2 weeks and literally did not look at a newspaper for the entire period. I did make a mistake and peeked over the shoulder of a fellow in the Paris metro and saw that the Dow was up 187 points one day. This ruined my concentration for the rest of the day.

The volatility in the N.Y. market reminds me very much of the period just before the 1987 crash when the market swung 100 points each way for days. My strategy in this type of market is to be hedged for all positions. I did this yesterday by buying August and September at the money calls on NTL, NNC, and BCE. This allows me to short these stocks and not worry about getting too badly burned. Yes, you are correct, I spent a fortune on premium. Why this strategy?

In this kind of market premium is relatively cheap. The implied vol of these options is a lot less than the current market conditions. I can now go long or short these stocks during the summer with lower risk. In Toronto it is preferably to put on options positions first and trade the stocks against them. This is because the stocks are very liquid with a 5 cent spread while the options can be illiquid with wider spreads.

I obviously think the volatility will continue for awhile but don't think a crash will occur. I am also bullish on these 3 stocks, especially NNC which I believe will go to $50 US by september.
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