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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (48724)	7/5/2001 3:21:04 PM
From: Gottfried	Read Replies (1) \| Respond to of 70976

Jerome, a friend responds to your post... >Jerome made comments in post 48705 that are just not accurate and I need to tell someone...(ggg) If you feel like it, you can post as "From a friend...." He commented: What concerns me is that if a recovery is on the way then the option put premiums should be going down, In the semi-equipment area that is just not the case. Look at some AMAT 30 and 40 puts about a year out. A thread viewer alerted me to the premiums which should be non existent if there is conviction about an uptrend. This is inaccurate. Put and Call premiums at any strike price have a strong relationship because of equivalence an the presence of arbitrage. If you sell a Call and buy a Put at the same strike price, you are effectively short the stock. If you simultaneously buy the stock, you are flat the market and only have execution risk. Therefore, the strike price of the Call plus the Call premium minus the Put premium will always be higher than current price of the stock by approximately the amount that could be earned at a risk free interest rate for the time period of the options. If the above is not true (within a small range due to execution cost and risk)arbitage specialists will swoop in and grab some risk free profit. The premiums on AMAT Put options for Jan 02 and Jan 03 are not out of line with expectations in a world that includes arbitrage.