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

To: RocketMan who wrote (2121)	6/16/2000 12:33:00 AM
From: TradeOfTheDay	Respond to of 10876

OK... bear with with me on my "guesswork " ! It looks as though , he initially seeks out LOW volatility stocks as the first part of the "set up ". He then watches for a breakout on those same LOW volatility stocks, which then become HIGHER volatility - which is what you would want - buy low volatility , sell into (rising) high volatility , right ??? it's kind of fun trying to figure this out... and I am definitely sold on the value of knowing how to work with various volatilities in pricing... so I am probably going to order his kit. BTW - I am using this site: www.ivolatility.com for some of my volatility data Here are the results of my Metastock scan using the Fishback indicator on today's data: CREE BCHE BOBJ CAIR DELL MUSE FTF Here is the commentary from one of the charts: Current short-term volatility readings are extremely low compared to the volatility witnessed during recent history. Six-day historical volatility is down to 20.63% and the ten-day volatility has dropped to 21.01%. Both are less than 50% of the current 100-day volatility reading, which is 77.96%. This is a good indication that short-term volatility is poised to rise back towards 77.96%. This means that option strategies designed to make money from increasing volatility are appropriate. Therefore ... Option traders should look for option purchases, such as an at-the-money straddle. A straddle is the simultaneous purchase of a put and a call, with the same strike price and same expiration month. At-the-money means that the option's strike price and the current price of the asset are about the same. In the case of BIOCHEM PHARMA I, to purchase a straddle one would simultaneously buy the put and the call whose strike prices were closest to 24.13. More sophisticated option traders may want to consider backspreads, strangle purchases, and butterfly spreads where one sells the at-the-money options. Naked option sales should be avoided.

To: RocketMan who wrote (2121)	6/16/2000 1:00:00 AM
From: TradeOfTheDay	Read Replies (1) \| Respond to of 10876

From THESTREET.COM's Option Forum: Without giving too much space to the competition, Barron's quoted an idea on how to play a potential collapse in the market, and the resulting volatility, from options strategist Don Fishback using straddles: "Investors ought to put on trades that will profit from a flurry of volatility in either direction, namely straddles, the simultaneous purchase of both a call and a put on the same stock at the same strike price. Straddles should end up in the black as long as the move in the underlying stock exceeds the combined cost of the call and put." What Steve noticed, Benowitz points out, is that most options will see their historical volatility "regress to the mean," or return to usual levels. Fishback, he adds, seems to think every option's volatility is going to go through the roof when and if the stock market careens downward. "It's scattershot logic," Benowitz says. Rather than invest in options with historically low volatility, why now get into America Online (AOL:NYSE) at a point when it has hit a historically low volatility that is bound to come back? Secondly, he adds, "I wouldn't buy straddles in this case. All that does is allow the traders to sell more options; it's a fatter trade and commission for them. I would instead selectively buy puts." Why? "Puts are one of the underrated plays of the last five years because of the go-go stock market," Benowitz explains. "And an even more underrated trade is picking out cheap puts in stocks that have the ability to get crushed." For example, take October 100 puts and calls on IBM (IBM:NYSE), which trade for 2 ($200 per contract) and 26 ($2,600), respectively. "For that money, why not just buy 10 times as many puts, if your premise is that the market will get hit? That way, 100 puts will make you more money than 10 straddles." For retail investors, straddles can be expensive. "First of all, straddles can be sucker bets. When and if the market collapses, of course, that fall will pump up volatility in options prices," Benowitz says. "But why not just buy puts? It's cheaper, safer and less capital intensive since you put less money to work."