Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Peter Church who wrote (75256)	2/5/2000 12:04:00 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

Peter - [[Do you have any insight regarding this situation: Yesterday I bought YHOO March 360 puts at 30.5 while YHOO was at 362. Four hours later YHOO was at 353.5 and the puts were selling for only 35: Puts Stock 30.5 362 35 353.5 --------------- Gain 4.5 -8.5 I would have expected better correspondence. What gives?]] Your expectations don't match the reality of option pricing. In particular, you need to read an option primer on option 'Delta'. Only if an option is deep in the money does an option price tend to track the stock price dollar for dollar even in the case where implied volatility is held constant. In the limit as the stock price moves to make the option very deep in the money, the 'Delta' of an option price approaches a value of 1 (dollar for dollar tracking with stock price). For all other cases, the option price will move less than the stock, everything else being equal. In your case of an at the money option, the expected 'Delta' value would be normally be about .5 and the expected change in option price would be 4.25, not too far from what you observed. Regards, Don

To: Peter Church who wrote (75256)	2/5/2000 12:06:00 PM
From: Skeeter Bug	Read Replies (1) \| Respond to of 132070

peter, yahoo was down about 2% and your options were up over 10%. direct correlation doesn't occur until you are deep in the money. i've seen stocks drop 10% in a day and the put options not budge. of course, i think that is b/c the company leaked earnings and folks took their position in advance.