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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe -- Ignore unavailable to you. Want to Upgrade?

To: edamo who wrote (35)	8/13/2001 12:58:27 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 1064

ed a, Nice example, thanks for posting it. One of the things that could help in finding good opportunities would be an automated scanner to search for them. Do you have such a thing? Of course you can expect to find them in cases like you describe, where there is a large sudden move in the underlying stock. Implied volatility also gets very high when important news is due, such as FDA panel recommendations on companies heavily dependent on the success of one new product. At times it would be nice to just scan for volatility anomalies, and figure out why after you find them. Dan

To: edamo who wrote (35)	8/13/2001 1:20:38 PM
From: Uncle Frank	Read Replies (2) \| Respond to of 1064

>> if you have a penchant to sell puts, it oft times is best to be intimate with the underlying stock, and take advantage of any anomalies in the implied volatility caused by a specific or market news event that sends the share price rapidly down.... Wouldn't that approach be the equivalent of buying on dips, a strategy best suited to bull markets? In markets like the one we've experienced for the last 18 months, where support levels have been been breached repeatedly, the risk/reward ratio in writing puts would seem to be unfavorable. uf

To: edamo who wrote (35)	8/14/2001 9:28:17 PM
From: Dan Duchardt	Read Replies (2) \| Respond to of 1064

Ed, I had an interesting situation today on BRCD, a stock I have been dabbling with trying to capture premium any way I can get it. One of my quote services gives an average implied volatility of 95%. When it started to collapse from just above 33 this afternoon, I sold an AUG35 put at .90 and thought I had caught a good price on it. I figured I might hold it till expiration, but BRCD has been an animal lately and is reporting tomorrow, so a quick profit on a good move was attractive also. As it was falling to below 32, I was watching the "fair value" based on the 95% drop to as low as about .35, and most of the bids staying about .10 or .15 above fair value except for CBOE who at some points in time was bidding twice fair value at .70 to .80. Needless to say, I was not delighted. I finally managed to cover at .65, but that's a long way from the .35 "fair value" target. As I write this, CBOE is bidding .65 with "fair value" at .37. Now I know I got better than fair value at the sale, but I thought it was because I caught a good price, and would have a chance to sell nearer to fair value. At 33.25, the AUG35 put at .90 had implied volatility of 132%. At the low of 31.65, the bid was still at .60 and that equates to 149%. At the offer I managed to hit, .65, it was 155%. Turns out my entry was not so spectacular as things evolved, but I'll take the little profit. If I had the nerve to hold it to expiration I'd be happy for getting the "good" price, but in the near term I wound up paying for a lot more volatility than I sold. Something very similar was undoubtedly going on with the AUG30 puts, but I was not watching them so closely. If I had been, it would be a good example of what you are talking about. Even now the best bid of .85 is over twice the fair value and represents a volatility of 154%. If I was more confident about the earnings, I might have sold them. I do have some short SEP30 puts I will roll out if things do not go well. Dan