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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: Gersh Avery who wrote (23147)5/18/2000 1:30:00 PM
From: Gersh Avery  Read Replies (2) of 42787
 
kinda thinking out loud here ..

not a recomendation to buy or sell diddley squat ..

Looking over the set of puts for June on SPX, OEX, and QQQ the first item that jumps out at me is the pricing verses the calculated fair value.

The supply/demand situation has led to the costs of the QQQ puts to be over priced. example June 86 bid is 5 1/8 and the fv is 4.58.

In contrast puts for the SPX and OEX have so much OI that they are underpriced. SPX June 1445 bid = 31 3/4 with the fv being 41.79. OEX 770 bid = 19 1/8 with a fv of 22.17.

Delta for these run
QQQ 86 = 44%
SPX 1445 = 47%
OEX 770 = 46%

The SPX puts are ~25% underpriced and the OEX are ~9%.

Of the three the puts on the SPX seem to represent the best value for the buck. The downside of these are the price overall. These carry a huge amount of prem to decay before the third Friday of June. In addition if I limit my purchase to $2500 worth of commitment, then that would require me to move to out of the money puts for the SPX. 1425 would be able to be entered with that amount of cash. However when I move there I lose some delta .. Delta for the 1425 June SPX puts right now is ~39%. Although the price is still well below fair value.

High probability that this will be the one that I target.
Given the undervaluation of this put, I believe that the amount of "prem ripping" will be limited.

Given the cash limitation I may have to settle for the 1415 strike.

Thinkin' out loud .. anyone else have any thoughts?
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