Trader J's Inner Circle Message Board

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Strategies & Market Trends : Trader J's Inner Circle

NVDA 189.21

+3.0%

3:59 PM EST

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To: ajtj99 who wrote (43694)	5/31/2001 1:46:43 AM
From: Londo	Read Replies (1) of 56535

re: options and KKD Look at KKD (Krispy Kreme). It dropped $4.85 today to 70.75, and the 70's only went up a buck to $5.00. People were paying $4.00 to sell this stock at 70 when it was over $75.00! The reason why this happens is that the implied volatility for KKD changes rapidly as trading progresses - i.e. the specialists while KKD was trading at 75 bucks jacked up the quotes (i.e. increased the implied volatility) to roughly 110%, and when KKD dropped down to 70.75 on the close, implied volatility declined to roughly 95%.. This is how obviously they make mega $$$ trading options - they don't really give a crap where the stock goes, you just have to set the right volatility parameters, and the effective spread is even bigger than the typical 40 cents you see posted on the quotes.

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