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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (3504)	2/23/2000 6:40:00 PM
From: Wyätt Gwyön	Respond to of 8096

In terms of buying calls, when a stock is volatile, the premiums are high. Even when oversold, right? Jill, you bring up an interesting issue. I think what you say is correct: premiums are high in volatile conditions, even when the condition is heavy selling. But just because an issue is oversold doesn't mean it is volatile. I'm imagining two different types of oversold conditions: 1. For example, drawing from recent memory, last September there was a big selloff in SNDK due to the Taiwan earthquake. Issue fell from like 95 to 37. I remember looking at the stock around 50 or so, and the option volatilities were very high. I guess this would reflect the feeling of option traders that the issue could have a quick bounce-back; i.e., that the common sellers had over-reacted. Therefore market makers would only sell calls for high premiums. 2. Contrast this with the fall of QCOM from 200 down to 105 5/8. QCOM was volatile when it was up high, but once it got down to like 130, then 120, then 110, the volatilities dropped. Why? Obviously, the issue was more oversold at the lower price than at higher prices. But "panic-selling" had subsided...more like seller capitulation and lack of buying interest. That's my basic understanding. Comments welcome.