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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: ig who wrote (60681)	11/3/2002 9:22:36 AM
From: Lucretius	Read Replies (1) \| Respond to of 94695

7500 in the dow in the next 2 weeks? lol.... you're dreaming... more like 9000 if you ask me...

To: ig who wrote (60681)	11/3/2002 10:35:26 AM
From: William H Huebl	Respond to of 94695

I have played this game before and lost... that is why I am using CMI to give me options picks which I futher qualify by my money-management strategy! But theoretically, IMHO, you are right... somewhere near the center of the range would most likely net you the most. I put together a spreadsheet to model what might happen. No Black-Sholes model used but an option approximation using an exponent of 1.2 starting at 5 cents for the cheapest. But it all depends on timing - if you want to improve on it! Say you know the sell-off WILL happen in the next 2 weeks and how far it will go. But you don't know exactly when it will start... mebbe in the next 2 days, mebbe in the next 4... but no later than 5. I believe you might increase your profits by scaling in... Say you have 10,000 you want to use, you might scale in by buying the mid-point the first day, the next lower the next, then next lower the next etc with equal values of $1,000 for the scalings. This is all hypothetic and theoretical stuff... you might want to contact a registered investment advisor for better advice. And I know of no formula that would spell out what you would do, with how much money, when!

To: ig who wrote (60681)	11/3/2002 6:26:18 PM
From: mishedlo	Read Replies (2) \| Respond to of 94695

A hypothetical question: Which DIA Nov put strike would give the max percentage gain if DIA were to fall from 85 to 75 in the next two weeks? I have looked at a few historic Dow plunges to figure this out. My brief study suggests that a strike near the middle of the expected plunge pays off the best -- in this example, that would mean DIA Nov 80 puts. Also, is there a commonly-known formula for this? Thanks, ig There is no answer as worded IMO. Do we slowly drift down to 7500 or do we spike down and stay down. DIA 75 puts would be a huge success if you bought tomorrow and we plunged to that lebvel in two-3 days. They could be worthless if we chop around up here, then in the last two days plunge to that level. You get yet a third answer if we just steadliy drift down (but note they can and do suck out time premium on last days before the final plunge). Thus if one expected a close at 7500 on expiry or during expiry week, a better question would be what DEC puts to buy. Assume 7500 at expiry and play some games. The 85's would be 10 points ITM and therefore worth maybe 12-14 or so at a cost of 3.70. You could buy twice as many Dec 79 and they would maybe fetch 6-7, so I am not sure you accomplished much. Somehow I would think something like the 82'2 would do it and those might be worth 9 or so and cost 2.50 vs 3.70. So you could get 1/3 more for the money. If we really tanked as in 1500 points that would maximaize the payout. If we do not fall as much the ATM's or even ITMs would perform better. There are ways to be more precise but Nov is impossible unless you provide more "assumptions", that better damn well be right. I would not mess with NOV here at all (unless you expect an IMMEDIATE drop). There are precice formulas with implied volatility and the like but I do not have them. M