Say, the stock price is 130, would Oct 125 call and Oct 135 put have the same price given the upward trend?
This is called an options combination. Each side of the trade carries a transaction cost and a premium. If hypothetically each side costs you $7, then either the stock has to (approx) go below $121 ($135-14) or above $139 (125+14) a share before expiration before you break even. If the stock stays at $130, then you lose $4/share. Each day you hold the position, the premium (value) of the option decreases, and it costs you money. The lower the price of the underlying security, the more the transaction costs and the minimum trading increments distort the math. Other common strategies (straddles) involve trading the same strike price with different expiration dates, or trading different strike prices with the same expiration.
In Options theory, the determination (and the skill) is related to a measurment called volatility. Volatility is a measure of the probability of the price of the underlying security going up or down substantially in price prior to expiration. The "fair" price of the option is determined by the number of days until expiration, the "cost of money", the strike price and current price of the underlying security. The only really tricky part is determining the volatility.
The thing to remember is that 80% of options purchasers lose money. If there was a sure way to make money, then everyone would do it, and it would stop working.
And, what's your opinion on how AOL might work the high bandwidth transport? Will they go with cable modem? DSL? both? who will they work with? do they have a chance?
AOL has gone out of the networking business (at least the analog part). It would be interesting to know the terms of their contract with Worldcom to know how much of a drain it will be over time.
AOL has been toying with cable access ever since Ted Leonsis came on board. They keep dabbling but never get around to actually doing anything. In the "good old days" when AOL was $2.50/hr, much of AOL's revenue was derived from people in rural areas who have few recreational opportunities, and few access numbers fo online services. That is still working against AOL, to some degree. While big cities are easier to wire for the higher speed technologies, they also tend to have more sophisticated uses, which Bob Pittman again reiterated recently is not AOL's target audience. |
