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

To: Arik T.G. who wrote (9268)	11/6/1997 4:36:00 PM
From: John Hunt	Read Replies (1) \| Respond to of 94695

AOL trading at 78-79 in after-hours market, if anyone else has puts. <<< ggg >>> John

To: Arik T.G. who wrote (9268)	11/6/1997 4:45:00 PM
From: Bilow	Respond to of 94695

Regarding index versus stock OOM put i.v: Interesting.. Suppose that individually, stocks had equal chances of rising as falling. This would imply that OOM puts and calls would have the same i.v, which could be larger than the implied volatility of at the money calls and puts. Also suppose that stock price drops are correlated more than stock price increases. In other words, crashes effect all stocks, while luck only happens to them one at a time. I think both these suppositions are reasonable, and I also don't think they are incompatible. I could cobble together an example with variance calculations for the doubters, but I am sure it would work. (Mathematical intuition.) This would explain the index numbers acting different from the individual stocks in such a way that it would not be possible to arbitrage out the inefficiency. Funny how arbitrage is so important to options pricing. Must be because there are so many of them available for "investing." As long as I am on a Ferengi kick, options pricing must follow: #62 The riskier the road, the greater the profit. -- Carl

To: Arik T.G. who wrote (9268)	11/6/1997 5:34:00 PM
From: Defrocked	Read Replies (3) \| Respond to of 94695

RE: "big smile of the OEXs to the tight lip smile of stocks options." Great line, can I use it without attribution? <g> I don't know the answer off hand. And probably not enough money in it, unless you own a CBOE seat, to worry about it, huh? I do know that the current bid/asked for CBOE seats is $665/775K, that there is some competition for option trades there and yet one pays for those seats some how. Try to arb it on paper and see what happens. I enjoy your posts. Good luck.