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

To: re3 who wrote (66724)	10/15/2003 11:21:17 AM
From: Real Man	Respond to of 94695

I play strikes around 17-22 on QQQ, furthest out. The reason is to play the volativity. The formula that governs OOM options premium is something like Exponent(- squarerootof(timetoexp. times (price-strike))/volativity) You see that volativity goes linearly under the exponent, while time to expiration goes as square root. When you have a long time to expiration and record low volativity, you buy OOM puts with huge time to expiration to play volativity. Then, if volativity increases quickly, in reasonable time, you gain a lot, even if stocks don't move down, since your square root of time to expiration does not change all that much at long times. That's roughly the reasoning behind it.