To Andrezej and Peter,
I really appreciate that there are people
out there who want to learn about options
and how they work...not that I am an expert,
but I do it for a living. As I mentioned in
an earlier post, volatility is the single most
important element in the pricing of options.
Every other factor is a given, i.e. dividend,
days to expiry, interest rate, etc. We of
course try to ascertain the implied volatility
of any series by where it is trading, and we
have programs that tell us the number. The
question then becomes do we think the options
are too 'cheap' or too 'expensive' based on
historical volatility. If so, we might make
a stand, but pissing into the wind only gets
you wet. The example I use (out of personal ex-
perience) is that if your neighbour puts his
house (identical to yours) on the market at
$350,000, then your house isn't worth $400,000.
Anybody remember the 80's?
If I might, I would like to raise a point in
passing. The TSE is considering a drastic overhaul
of derivative trading. Several of their suggestions
bear scrutiny. They propose to abolish client
priority. As a professional trader, I vehemently
oppose this. You might ask why... I believe a
true client order should always trade ahead of a
pro at any price because 1) it's English common
law and 2) it's only fair. Secondly, they are
proposing a change that will skew the rules in
favour of the 'upstairs' pro traders, at the
expense of fairness, visibility and an equal playing
field for all participants in the market. It is part
of an overall shift from an "open-outcry" auction
market to a screen based system, i.e. computerised
trading. I have no problem with computerised
trading as long as full disclosure is provided.
Unfortunatly, this is not the model proposed by
the TSE.
You could all do yourselves a great service by sending
an e-mail to <scrocker@tse.com> saying either you
want to see client priority preserved or you want more
information about the proposed changes. If no one
speaks out, they will ram through rules changes that
will make the options market as big a cesspool as the
equity market, and if you don't know the problems with
the equity market rules in Toronto, I will be glad to
explain them to you. Show the power of the Net!
I haave been a specialist for 16 years...I work for
myself...if I don't trade, I don't eat. I believe in
client priority and I believe in a level playing field.
If any of this concerns you, I implore you to send
a question or a comment to Susan Crocker at the TSE.
Sorry to take up so much band-width, but it's important.
Btw, this is one truly scary market. Bids evaporated
on the downside after Garzarelli went bullish. I have
one foot pointed towards the exit at all times.
My late partner gave me one truly good piece of advice
(among others): loss of opportunity is better than loss
of capital.
"Mind the gap!"
Porter |
