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Strategies & Market Trends : Tech Stock Options
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To: uptick who wrote (246)3/8/1996 12:46:00 PM
From: Kevin   of 58727
 
Better check your sources regarding IIX options being Euro-style. They
are American-style. And at this point, neither is all that attractive
to invest in. Practically zero open interest on all contracts and
no volume. You may have one hell of a time buying and selling near
your prices.

Both have downfalls, which you mentioned in your description to Thom.
IIX is cap-weighted. In such a small index cap-weight will usually
be unbalanced--a few members moving the entire index, especially
when it's all tech stocks. Right now CSCO controls almost 23% of the
movement in the index. A person with a heavy position of IIX calls
may want to purchase out-of-money CSCO puts to hedge.

INX is even worse. It's equal-weighted! CBOE is the only index
disseminator that uses this format, for the most part. You will
never see S&P or DOW calculate an index using equal weights.
Right now the weights of the 15 members range from 3% to 11%.
At a quarterly update, CBOE will re-weight all of them to = 6.66%
of the index. So all of the sudden, the entire calculation of the
index changes in one day.

In my opinion, they should both be price-weighted. Then a $1 movement
means the same to all stocks in determing the value of the index.
This is how SOX & TXX are calculated.

Thoughts???
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