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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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To: TFF who wrote (11098)2/12/2004 3:26:24 PM
From: Tech Master   of 12617
 
LPS5:

Expirationless Options (XPOs) are simply plain "vanilla" American-style options without expiration dates. They provide many structural advantages over many other financial instruments. XPOs offer a lower-cost alternative to a traditional stock purchase when dividends or voting rights are unimportant. XPO puts have less risk than a short stock position since they limit the downside risk to the option premium and also offer strike price selectivity. An XPO put would not require stock borrowing, an interest cost on the stock loan or theoretically unlimited risk. Of course, XPOs offer also an advantage over expiring options by eliminating expiration risk. XPOs can be used to hedge short option risk at less cost than can accomplished by using the underlying stock.

Information is available on-line at nextrade.com that includes several white papers and an XPO pricing model for dividend-paying stocks developed by Dr. William Margrabe. Dr. Margrabe does not deviate from incumbent theory with his approach to pricing XPOs on dividend-paying stocks and its probably a reasonable starting point for the market. However, I believe that XPO prices will trade closer to current LEAPS prices as the product matures in the marketplace.

I believe that XPOs will become an important new option product for many of the reasons that Dan Duchardt mentioned in earlier discussion. XPOs will allow the creation of strategies that currently are not available in the marketplace or make many existing strategies even better. XPOs are truly a new bridge between the underlying stock (or asset)and tradional expiring options.

Happy trading,

TM
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