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Strategies & Market Trends : Canadian Options

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To: Frank Vessella who wrote (1026)	5/22/1998 10:27:00 AM
From: Vectra	of 1598

Well... I'm going explain two ways what these positions could represent or would provide for the participant, first if they are executed simultaneously this would be called a combination Long Straddle. The purpose of such a position would be one were you believe the market is about to move, but are unclear as to what direction, this type of position works well when the market has been particularly quiet and has just begun to move in a volatile fashion. Profit for such a position is unlimited once one of the break-even points is reached. If we consider these trades as separate entities or trades they are simply a call on where the trader believes the particular stock will be at or towards expiration. To answer your question if these positions were executed together a simplistic way of looking at the position would be that the stock in the purchaser's view would move, however as I indicated above they were unsure as to which way. Taken separately, the purchaser's view would be it is going higher (on the call purchase) or lower (on the put purchase). This being said these positions by themselves may have a limited impact on the equity market place, however without a sustainable increase in open interest, we're talking a daily increase of these type of purchases, in either the puts or calls the market will absorb these positions with little impact. Remember these positions could easily be taken on by someone who already held a position in the stock or was about to have a position in the stock and may not indicate a movement was forthcoming. The CBOE often broadcasts put/call ratios, however they are so close together that (from an overall market prospective) that I consider them useless in gauging the market's trend. V

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