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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: Chip McVickar who wrote (757)3/7/1998 12:46:00 PM
From: Madpinto  Read Replies (1) of 2241
 
You can get a much more in depth, accurate answer to this question by calling the CBOE at 1-800-OPTIONS. They have a push on now to make these options more popular. I would expect them to help you any way they could. Let me try to explain some things they may not. First of all, on the plus side. Do not take this as a guarantee, but usually out of the money puts increase in volatility when the market begins to slide. If the Dow drops 10% or so, your out of the money puts will probably do pretty well even if they are not yet in the money. Of course as things settle, the premium will erode quickly which brings us to the negatives. This product does not have the same liquidity as the SPX or the OEX, so it may have wider markets than these other products (I do not know for sure.) With any index product, the insurance you receive from owning the puts can eat into your returns. Calculate how much you would lose (stock and options) if the market went right to your strike at expiration. As far as buying back month options go, the obvious benefit is you don't have to roll from month to month. Again, the bid/ask spread may be wider than front month. With commission savings, the wider market may not matter as much. I probably have not answered all your questions. Call the CBOE and then post any new questions you may have.
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