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.

Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: jjs_ynot who wrote (1597)	8/22/2000 9:14:33 AM
From: Investor2	Respond to of 2317

Can you give me an example? Thanks, I2

To: jjs_ynot who wrote (1597)	8/24/2000 4:44:53 PM
From: OX	Read Replies (1) \| Respond to of 2317

hi dave, i have not, and I really haven't given this much thot (as you will see :-), but is this basically playing volatility skew? I would think this is just one step above arbitrage and that it might not be efficient enough for retail to take advantage of. feel free to set me straight.

To: jjs_ynot who wrote (1597)	8/24/2000 11:24:42 PM
From: KFE	Read Replies (2) \| Respond to of 2317

Dave, I programmed Black-Scholes into a spreadsheet Your computer skills are better than mine, I have to do it the old fashion way. I have been playing some ratio writes and ratio spreads today to take advantage of Implied Volatility disparities across strike prices. Volatility Skews-it sounds like you are trying to trade like an option market maker. I don't know how practical this is for the retail investor. We are talking very advanced stuff here and we don't want to turn people off so I will just give a few thoughts. If the BSM model was truly efficient there would not be any skew. As you know OTM options are usually overpriced relative to ATM options causing a positive skew. An important thing to remember about vertical spreads is that they are subject to skew risk. Ratio spreads and skew: When skew is flat it is better to be long ratio spreads(backspreads). Remember that index options are not generally subject to underlying arbitrage and therefore can have a negative call skew. Option market makers are not really interested in the theoretical value of an option but they due use skews to determine which options are overpriced relative to each other under the same pricing model. Regards, Ken