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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jon Khymn who wrote (83751)	4/23/2003 2:50:12 AM
From: Jon Tara	Read Replies (2) \| Respond to of 99985

Is there any way to do a pure play on volatility? That is, an option strategy that will return a profit if volatility rises, irrespective of price? I don't know of any. There are strategies where an increasing volatility will improve profitability, but none where a price move cannot undo it. I guess what I would like are cash-settled options on a volatility index... While I think downside is more likely than upside, I am seeing some things that do not make me terribly confident about a sustained market drop from here. In particular, looking at individual stocks, a lot of beaten-up small caps seem at the beginning of a blast-off phase... A straddle or strangle would make sense here, with options cheap. A put backspread may be attractive, given my downside bias tempered by considerable doubt. I do think that we will get at least a short-term downside reaction in fairly short order. What I am uncertain about is the follow-through. Given that, perhaps the best option strategy is a simple long put, following it up later by converting the position to a bear spread if it goes my way, potentially to collar the position. I am leaning toward the purchase of an at-the-money put, with a follow-up of the purchase of an at-the-money (i.e. lower-strike) call if the initial drop I expect materializes. Since calls are generally priced lower than puts, that fact, along with some loss of time premium, will help minimize the cost of the combination. Other ideas?

To: Jon Khymn who wrote (83751)	4/23/2003 7:34:43 AM
From: Tom Pulley	Read Replies (1) \| Respond to of 99985

Tom, why is this thread dead? Actually this thread has been quiet for the most part for the last year and half. Every once in a while a few people get on and pick up the pace for awhile. It seems to me that these threads need some regulars to post numerous times daily to keep them active. We don't have that here, and frankly, that is one reason I post here.I am fairly busy and it is difficult to read all the posts on the more active threads. The market is throwing us a curve ball here.........not the first time. This short trade could end up being one of those losing trades that happens from time to time. However, so far my indicators say to stand pat. The market has a way of luring you into abandoning a trade at just the wrong time. Perhaps that is where we are right now. I'm actually quite surprised the market hasn't reacted more negatively to SARS. Can you imagine the effect it would have on our economy if it hit us like it has China and Hong Kong? I certainly hope and pray it doesn't, but I think that is still uncertain. Tom