Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 224.13

-2.9%

12:25 PM EST

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To: Jacob Snyder who wrote (24877)	10/5/1998 4:01:00 PM
From: Berk	Read Replies (2) of 70976

No, no obligation to change. Option pricing is based upon price, time to expiration, interest rates and volatility of the underlying. Markets are made by competing market makers on the floor. They determine where they want to make the B/A based upon the above factors. Obviously in most cases the key issue is the volatility of the underlying. As the volatility goes down the premium will recede as well (in theory)provided that the MM's don't feel that the volatility will go back up again in the near future. For a LEAP my guess is that yearly volatility is averaged out over the past 5-8 years and used as the basis for the bid/ask, i.e. they bid a "low" volatility and offer a "high" volatility. Interest rates may also play a role now more so than in the past ten years since we are lows not highs.

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