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Technology Stocks : Qwest Communications (Q) (formerly QWST) -- Ignore unavailable to you. Want to Upgrade?

To: limtex who wrote (5215)	10/7/1999 8:09:00 PM
From: Sean Salisbury	Respond to of 6846

It depends on the investors motives for buying the right. A lower strike will mean a higher premium, and a higher strike would mean a lower premium if you are going long. Some people trade the options and never get into the stock. Others hedge, cover, or do any number of things with the options. It is best to read about it and draw your own comclusions. Sean

To: limtex who wrote (5215)	10/8/1999 1:48:00 PM
From: Mike Fredericks	Read Replies (1) \| Respond to of 6846

Longish response... There is a pricing model for options called the Black-Scholls (sp?) model, which takes current stock price, strike price, days until expiration, and the volitility of the stock into account, and then generates a "fair value" for the options. Most options trade near the Black-Schools "fair value" most of the time because so many people have programs that search for underpriced options in order to buy them. Consider a shorter-term option, say the options that expire in 2 weeks. Consider a deep in the money option... say an option with a strike of 50 when the stock price is at 80. When the stock goes up $1, the option price will go up $1 because the likelihood is high that the option will end up in the money later on. Whereas if the stock is a volatile one like Dell, if you look at a $75 strike option, when the stock goes up $1, the option won't necessarily go up the same $1... often times it will go up less. Just like when the option is out of the money (say the $85 option when the stock is at $80) is not priced at $0 when the option is out of the money. All this behavior has to do with the volatility portion of the equation. Sorry if this is a confusing answer, but it's the best I could do in short order. If you don't understand this post, don't buy the options... it's not worth the risk. With options it's very easy to lose everything. Buy that $35 strike option and if the stock closes at $34 15/16, you lose all your money. -Mike