Lisa, did you read the link on SI Home page regarding the new Win95/NT security hole?..this is a brand-new thing that MSFT is working on right now to fix..meanwhile, some immature people are exploiting this hole to attack SI and other sites.
Re The concept is that you will see more movement dollar for dollar with your in the money....but do you think that they couldnt be overvalued as well. or do you think they will jack up the prem less with in the money versus out of the money
More movement dollar for dollar with an in the money strike, AND the intrinsic value can't be stripped off.
For example, take a look at CPQ at close Friday:
cboe.pcquote.com
Feb 50c ask 8 7/8: 7 pts in the money (intrinsic value) and 1 7/8 premium.
Feb 55c ask 5 3/4: 2 pts intrinsic and 3 3/4 premium.
Feb 60c ask 3 1/4: no intrinsic, effective premium of 6 1/4 (strike prc 60 plus 3 1/4 = 63 1/4, less stock prc of 57.
So there is simply less room to jack premiums around when the strike is deeper in the money. Then when most people go for strikes out of the money because they are "cheaper", that creates demand which further jacks the price up, particularly on volatile days like Friday and this coming Monday will likely be.
Check this: There are 26,431 CPQ Jan 65 call contracts that are almost guaranteed to expire worthless next Friday.
Jan premiums are similar of course, but with only 5 days left that is scary. Market goes the wrong way and the contracts are near worthless. Stop loss orders aren't allowed when stocks drop past x points (80 on the DOW?), so that can't be relied on. However, a limit order for Jan 52c might be somewhat safe, as CPQ has support above that area (not guaranteed to hold of course).
DK |
