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Politics : High Tolerance Plasticity
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To: Tommaso who wrote (1485)3/13/2001 3:57:19 PM
From: energyplay  Read Replies (1) of 23153
 
Dow puts -

I usually try to understand the person on the other side of the trade.

With the DOW put writers, I have 3 theories (actually 2 1/2)

1. The writer thinks the interest rates will decline sharply, sending the Dow way up by December.
I think this explains why there is a premium in the price. Since these are European style, the Dow can dip during the summer as long as it comes back by December.

2. The writer shorted the Down when it was higher , then wrote puts when it was low to capture the gain &
earn interest on the cash. Being Euro style, the writer doesn't have to buy until December.

3. The writer wrote puts on the Dow and bought puts on Nasdaq or QQQ, figuring on reversion to mean of the P/Es.
The Dow P/E has be about 24-30, the Nasdaq P/E about 100, and the NDX & QQQ >> 100. The writer's exposure is also on the less volitle index.

Tommaso : Broker mixed up on longs and shorts : Sounds like your broker can't read... which one is this ?
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