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To: Brom who wrote (36065)	4/24/1999 10:39:00 AM
From: Bonnie Bear	Read Replies (2) of 86076

well, here's what I think is happening...one of you options guys correct me if I'm way off-base. here's the basic equations for black-scholes options pricing: sjsu.edu the equations work on stocks that have no dividends, are highly liquid, and in conditions where the risk-free interest rate (treasury bonds) are stable. Now in conditions like we have right now where the interest rate is flat and stable, you can set "r" to a constant in the equation..now look how simple this is for the bookies in the brokerages! Most of the newbie retail investors are trading options and not stocks, as far as I can tell...as soon as a stock is run up into the ozone on a short-covering rally, its volatility is maxed out. This lets the equation reduced to something even simpler, a fast-to-solve differential equation containing the price of the option, the price of the stock and time. If demand for the option is so much greater than the demand for the stock, then the option demand drives the equation...the bookies just let the computers set the stock price so that the options bookies can make a profit and most options traders lose money. Derivatives products are unregulated and the feds don't take them into account in monetary policy..this is the fatal flaw that will kill this country. So the big guys make money on the options, the little guy gets the overpriced stocks swept into his 401K and he is happy as he thinks he has made money.

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