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To: Rangle who wrote (35045)	7/10/2007 12:05:32 AM
From: joseffy	Read Replies (1) \| Respond to of 48461

Rangle, Start feeling better NOW.

To: Rangle who wrote (35045)	7/10/2007 9:13:44 AM
From: Bucky Katt	Respond to of 48461

Hope it is nothing serious.

To: Rangle who wrote (35045)	7/10/2007 2:37:22 PM
From: Bucky Katt	Read Replies (1) \| Respond to of 48461

There was a good article in Barron's regarding calls on volatility, using the VIX. There was another article a few weeks ago as well, not sure where I read it though. I did by some VIXGQ (july 16 calls) yesterday, up 55% on the day. Modern Portfolio Protection By LAWRENCE G. MCMILLAN THE CURRENT BULL MARKET began in march 2003. since then, there has not been a correction of 9% or more for more than 1,600 trading days, making this the fifth-longest bull market for U.S. stocks in history. Many portfolio managers are concerned about protecting the gains they've accrued, but are reluctant to give away potential upside. Cost-wise, a "macro" strategy using S&P 500 options (ticker: SPX) is the most efficient way to hedge market risk, but only if a portfolio tracks the S&P closely. A "micro" approach -- hedging individual stocks with options -- provides the most exact hedge but can be quite costly, both in terms of "insurance dollars" and the time spent managing the positions. The most popular form of "macro" protection has been buying out-of-the-money SPX puts, but a new class of derivatives, based on the CBOE Volatility Index, or VIX, has grown in popularity. The volatility index made its debut in 1993, and options based on it began trading last year. When they expire, they settle to the price of the index. Open interest in VIX options has grown rapidly, to 1.7 million contracts, some 1.2 million of which are calls. Buying volatility futures, or call options on volatility, protects against sharp increases in volatility, which typically occur when the stock market drops. VIX calls are a better hedge for a broad-based equity portfolio than SPX puts, because they provide dynamic protection. Suppose one buys SPX Dec 1400 puts with the S&P 500 near 1530; the puts are approximately 8% out of the money. If a strong summer rally develops, the S&P 500 might rise to 1700 in September, a time when protection is most needed, as stocks tend to perform relatively poorly in the fall. But the puts are now 300 points out of the money, and therefore almost useless as protection. This doesn't occur with the VIX. Suppose that you initially had bought VIX calls as protection, with the VIX below 15. Again, suppose the market rallies to 1700 by early September. At that time, the VIX is likely to be trading only slightly lower. Thus, the VIX portfolio protection still is nearly as viable as it was originally. If the market drops sharply, the volatility index will shoot into the 20s or higher, and the long VIX calls will provide protection. Because of the way that VIX contracts behave, portfolio hedgers are buying short-term calls rather than longer-term ones, in order to get the most protection. With the CBOE Volatility Index currently near 15, the largest open interest is in the July 17 and the August 18 calls. Both sell for less than $1 per contract and would provide ample protection for a portfolio if the VIX should shoot into the mid-20s during a severe market correction. Also, owing to the extreme volatility of the VIX, you need only protect about 10% of the value of a stock portfolio, thereby keeping the overall cost of this insurance lower than that of protection using SPX puts. -------------------------------------------------------------------------------- Lawrence G. McMillan is president of McMillan Analysis, a registered investment-advisory firm in Morristown, NJ ( lmcmillan@optionstrategist.com).