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Technology Stocks : INTEL TRADER -- Ignore unavailable to you. Want to Upgrade?

To: Trading Machine who wrote (6512)	8/6/1999 11:05:00 PM
From: MonsieurGonzo	Read Replies (2) \| Respond to of 11051

TM:" time marches on... " ...take a look at WMT; remember I was talking about "selling the AUG 40 PUTs"... note WMT ended up about where it closed Thursday, -1/8. now, go to quote.com if you're not there already, and enter WMTTH (or, type in the string WMT AUG 40 PUT ). See how it spiked up to 1.5x2 on the day when we paper traded sold this PUT ? That's our "entry". now note where it went Friday: WMTTH continued to decay from 1.125 CLOSE Thursday to 0.875 CLOSE Friday -- this, even though WMT felt even today's session; what's with the WMTTH PUT ? lessee, that's +22% gain (since we are "short" WMTTH PUTs) on a day when WMT ended down -1/8 = two teenies. wow! ...this is probably an illustration of the combined effects of "implied volatility" and "time value decay" (plus a little "slippage" from the boyz in Chicago, as Gersh might add ;-) in essence, the WMT underlying did nothing, but our short WMTTH PUTs gained +20% !!! This is why the option seller often has an advantage over the option buyer - even though a long CALL is supposed to be the same thing as a short PUT. Gersh might say something like, "this is the advantage that the house usually has over the gamblers in it". (1) decay in time value... (2) changes in implied volatility... __________________________________________________________ options - you guess right, you win. options - you guess wrong, you lose. options - nothing happens, the seller wins. __________________________________________________________ ...two out of three is better than 50:50 (^_^) -Steve