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Politics : Ask Michael Burke

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To: Knighty Tin who wrote (35318)	11/5/1998 11:47:00 AM
From: epicure	Read Replies (1) of 132070

General question on options- MB I have noticed a certain irrationality in the pricing of options- take PAIR for example- on the way down from the teens leaps on PAir at 20 could be bought for about 1 1/4 when it was at ~12. Then it dipped down into the single digits, the leaps got as low as 3/16 - on the way back up the leaps were worth 1 1/4 in the 11's- went up to 2 in the 12's then the option makers suddenly re-priced and the price did not go back up to 2 again until it got into the 13's (which was still high relative to where the price was on the way down). My question relates to the rather erratic nature of the option prices- what kind of calculator are the option makers using? Is this a soft science with a lot of subjectivity in it? I am sure we have all noticed that when rapid changes in the price of the underlying stock occur inefficiencies develop in the option price- these are usually quickly corrected- but if you can exploit them they can be very profitable. I figured you might know a good reference on option pricing- I am interested in learning about it from the Market Makers side.

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