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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (140502)	1/24/2007 7:19:58 PM
From: skinowski	Read Replies (2) \| Respond to of 209892

Slevin's theory of volatility... I like that - it has a nice ring to it... :0 Implied volatility, if memory serves, is that mysterious (calculated) part of the price of an option which accounts for the difference between the actual price paid, and the theoretical calculated price - based on intrinsic value, time value, and the actual historic volatility of the underlying. It's got to be reflecting a balance of emotions - how strongly the buyer desires to own the option (and is willing to pay up) -- and how willing (or, afraid) is the seller. Those emotions will be determined by the player's perceptions of the markets. The VIX tends to go up in declining markets, as investors scramble to buy protection - and nervous sellers demand a higher premium. During bull markets there are more willing sellers - in part, I think, because selling covered calls is a pretty safe enterprise (and naked put selling is often thought of as free lunch). During bull markets the decline in VIX is caused by bullish expectations - and is, in effect, a lagging indicator. It would appear that the best time to buy puts is at the tops. If you sell them at lower levels, you capitalize on both - the move in the underlying, and also on the spike in implied volatility. The small difficulty is to be right about the direction of the underlying... -g/ng Maybe we should put our heads together and develop a Slevin-ski theory?... :)