VALENCE TECHNOLOGY (VLNC) Message Board

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Technology Stocks : VALENCE TECHNOLOGY (VLNC)

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To: Robert Cohen who wrote (5706)	12/1/1998 9:06:00 PM
From: I. N. Vester	Read Replies (1) of 27311

re: managing a vlnc long position Robert, the problem with using put options to protect your position is that VLNC options, both puts and calls have been very expensive. E.g. if you want to protect your position now at $10 until June, a June 10 put will cost you $3. This protects you from 100% of any depreciation, but costs 5% per month. Just as a comparison, before all the recent volitility, puts at the money on the S&P 500 cost about 1% per month. I.e. you could have protected your downside against any loss at a cost of 12%/year. Unfortunately, VLNC portfolio insurance via put options is likely to remain quite expensive, unless the stock rises and then flattens out, thereby reducing the amount of volatility priced into the options. In the best of all world for longs, the price will continue to trend upward on a fairly steep slope. In that case, options will continue to be priced very high due to the actual historic volatility.

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