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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: f_mcknuckles who wrote (13342)	10/6/2004 12:52:09 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

Options seem way underpriced in general. I'd agree on that one, particularly with the elections coming up and the presumed increased potential for an attack by a terrorist group (like Madrid). Option pricing in practice takes into account the fact that markets have fat tails - that's why you see the so-called volatility "smile" or "smirk" if you plot the implied volatilities for near-term options - the out-of-the-money options will show higher implied volatilities than do the at-the-money options. Peter

To: f_mcknuckles who wrote (13342)	10/6/2004 2:15:33 PM
From: Sam Citron	Read Replies (2) \| Respond to of 52153

Options seem way underpriced in general. Stock volatility is at about an eight year low right now. These two statements appear to be contradictory to me (unless you mean underpriced compared to historic norms, which is not very interesting) as low volatility directly causes low option prices. That said, CTIC option premium seems anything but underpriced to me. Thank you for the colorful expressions you cited pointing to the potential dangers and foibles of "volatility selling", but I would be more interested in understanding the actual downside of the cc write strategy that I am proposing. I am certain that the market will be happy to teach me what I need to know, just as I am confident that "revealed preference" is an adequate substitute for 95% of all dialog about valuation. You suggest that a strategy that yields over 20% in 5 months assuming a stagnant stock price is like "running in front of a steamroller and picking up nickels"? Please elaborate, for I fail to see the analogy. Sam