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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Cynic 2005 who wrote (11650)	12/16/1997 2:45:00 PM
From: MythMan	Respond to of 18056

>>The best of all worlds for an economy is called, well, a myth! Right Pete? -g-<< Actually no, thats called goldilocks. BK is the myth. Get your terms straight mohan <g> Pete

To: Cynic 2005 who wrote (11650)	12/16/1997 3:15:00 PM
From: Bearded One	Read Replies (2) \| Respond to of 18056

Two Technical Questions: I know enough to know that these aren't easy, but here goes. First Question: There seem to be a lot of amature technicians. By amature, I mean people who don't work for an investment firm, people who've read a few books, etc.. and I see a lot of people throwing around terms like "head and shoulders patterns" or "fill the gaps." I suspect that most of the people I hear using these terms don't understand them, but no matter. My question is: What is the impact of the new influx of 'technicians' on the behavior of the stock market? An example: Stock XYZ forms a head an shoulders pattern. A bunch of amature technicians see it and immediately purchase puts. The purchasing of the puts temporarily drives down the price of the stock (the sellers of the put short the stock and buy the call to get an arbitrage). Thus, the head and shoulders pattern, in some sense, correctly predicts a downward move, but that downward move is faster than before all the technicians were around, and has a temporary component due to the arbitrage. Are we seeing this? Compared to 10 years ago, are we seeing faster, more drastic, and more temporary fluctuations due the new amature technicians? Second Question: The value of a Put or Call reflects the volatility of the underlying stock, or supposedly. But the cost of a put or a call also reflects standard supply and demand. With the new influx of people willing to gamble on puts and calls, demand has increased. Thus, the price of puts and calls perhaps has increased? That's not my question. My question is, assuming that the price of puts and calls increase due to increased demand, does that affect the volatility of the stock? So if the implied volatility of options on XYZ is 20%, will the volatility of XYZ increase to match (somewhat) that 20%? Again, a possible scenario. Someone sells a call at a high price. They hedge their position by purchasing the put (raising its price), and buying the stock. Adding the future selling of that stock at expiration, that's two extra transactions in the stock. Does that affect price volatility? Thanks in advance.