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Technology Stocks : Dell Technologies Inc.

DELL 133.59

-1.8%

Dec 3 3:59 PM EST

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To: William C. Spaulding who wrote (55810)	8/3/1998 3:49:00 PM
From: William C. Spaulding	Read Replies (4) of 176387

How much does volatility of stock affect the option price? Microsoft and Dell are trading close to the same price. Dell is $1 1/16 higher. Because Microsoft's stock hasn't moved much lately, its implied volatility has declined and this has reduced option premiums. Here are some option prices (last trades prices): Current Prices: MSFT: 108 15/16 DELL: 110 MSFT Aug 120 call: 9/16 Dell Aug 120 call: 3 1/8 MSFT 115: 1 1/4 Dell 115: 4 1/2 You can see that there is an enormous difference, based mostly on volatility and report-of-earnings expectations. Both of these factors will decline after earnings are announced, and will cause option premiums for Dell to decline. This is how a call can decline in value even though the stock increases, and likewise, for puts. You can see the big difference. The underlying stock price is not the only factor affecting option prices. Even though Dell is only about a dollar higher than Microsoft, its Aug 120 call is 2 1/2 times higher than Microsoft's Aug 115 call.

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