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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: Leland Charon who wrote (32020)	12/28/1997 1:36:00 PM
From: Patrick Slevin	Respond to of 58727

Gee, I don't remember where the PREM, or spread, post was. I look at a 5 minute tick chart on the spread which I locate directly below a 5 minute tick chart on the SP8H. Generally, the 2 charts work in lockstep with each other, so I read the spread chart for clues as to intraday changes in trend. I'm quite sure this is not uncommon, as I often read commentaries where traders discuss where the PREM is or what it is doing. For my own part, depending on the intraday volatility in the market I take several ticks at a time(each tick equaling 5 minutes)...usuallyt I take 4, so a 20 minute period of time. If the recent intraday trend....by recent I mean the past 1/2 hour, hour or so....is down, then I look for the PREM to continue to stay at the low end of the range, occasionally creating new lows or revisiting earlier lows. All I use this for is a clue for a suggested entry/exit point. If I'm short the SnP or long OEX puts and the PREM starts to trend up to create new intraday highs I put enough value on that action to start considering taking off the short position. If on the other hand, the PREM stays at the low end of the range for extended periods of time, generally even if the market is sideways I'll keep the short position because it suggests that it is merely a matter of time before the market weakens and moves lower. Again, it's only an indicator and must be observed along with other information. I still trade OEX but I don't care to. The only reason is because I occasionally prefer to be on the short side of a trade (for example) but I'm reluctant to maintain a SnP (futures) position overnight or over several days. For example, I think it was Tuesday we had a gap up open. Leaving on the put position and staying flat overnight in SnP allows you to short SnP from a higher level. On the other hand, had it been a gap been down you would still have the put, even though putting on a new SnP short might have been unwise. I don't trade SPY...no reason, just don't. The Diamonds are a new one on me....I know there's a new CBOE indicator coming out on VEGA but I have not heard anything else. Diamonds, I suppose, are supposed to be the DJIA version of SPY?

To: Leland Charon who wrote (32020)	1/2/1998 12:06:00 PM
From: Patrick Slevin	Respond to of 58727

On S&P Premium. First of all, I apologize for not mentioning this sooner but I am usually 3~4 months behind on reading a magazine called Technical Analysis of Stocks and Commodities and I only came across this article a moment ago. In the Bonus Issue, probably sent out in Late October, there is a 3 page article in the section on Techniques entitled "Market Direction and The S&P 500 Premium". Page 38. If you can get a back issue it may help you. Generally, it tries to explain in general terms how/why programs will kick in when PREM changes levels. In simplistic terms, a key concept (which will no doubt, be obvious to you...but leads to the concept of using PREM as a short-term indicator) is that it is faster, simpler, and cheaper to buy or sell a futures contract than to buy/sell an assortment of stocks. As a result, short-term sentiment has a major impact on Premium levels. Therefore, in a bullish environ PREM will be consistantly above Fair Value and vice versa. Program traders, however, will prevent PREM from drifting too far from FV by slamming the market with large buy or sell programs. So, observing PREM will help the day-trader determine whether and when Program Traders will act. In essense, you are trying to 'front-run' the programs. For a position trader, observing PREM levels over a period of hours or days provides a clue as to whether or not one can expect higher or lower prices over the next day or 2. A slight downdrift is normal, keep in mind, as PREM shrinks naturally towards contract expiration. The last 2 sentences in the article are "Premium, however, is just another indicator. Don't even think of making it the sole basis for a trading decision."