Help with OEX trading for Master's Thesis Message Board

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Strategies & Market Trends : Help with OEX trading for Master's Thesis

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To: NateC who wrote (8)	3/9/1999 12:18:00 AM
From: Kenneth Little	of 13

Hi Nate Congratulations on finishing your MBA. Sorry it took me this long to respond, I have been overwhelmed in writing my Thesis during the last five weeks. However I am finished with my Thesis as of tonight. When I want to go Short a Strangle I calculate the Strike Prices of the Call and Put Options I would sell with the following formula: First things to know and insert into the formula. 1. Current Value of the OEX, example of when it was 622 2. Standard Deviation of the probability of winning, example use 90%. 90% gives us a two tail normal distribution of 5% in each tail. Standard Deviation of 5% tails is +1.64485 for upper tail and -1.64485 for the lower tail. 3. t = Time factor = square root of days left to expiration divided by 365 days in a year. example t = .291 4. The closing volitility of the OEX, find at www.cboe.com (ex .3) Strangle Call Price = 622 * 2.718 raised (.3.2911.64485) = 718 Strangle Put Price = 622 * 2.718 raised (.3.291-1.64485)= 539 Go Short the Strangle with the closest Call Strike Price to the 718 Go Short the Strangle with the closest Put Strike Price to the 539 Thanks Ken

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