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

To: ViperChick Secret Agent 006.9 who wrote (32732)	1/10/1998 9:38:00 AM
From: Patrick Slevin	Read Replies (1) \| Respond to of 58727

I understand what you are trying to say. For my own part I've been avoiding OEX (for the most part) and sticking with SP8x. The DJ contract or even E-Mini is better than sticking pins in my eyes with the OEX but if you are to choose the OEX it might help to try to understand whether or not the option in question is overvalued or not. The following book was recommended to me by a CBOE member. Option Volatility & Pricing by S. Natenberg. I received it in a day or 2 from Amazon for about $35 or so. List is $50. It has been my understanding that one cannot consistantly do well without knowing how volatility affects option pricing. Certainly on can do well for a time, but floor traders know vol and pricing very well. This book reads something like a school text, but it has some charts and some formulae which probably can be loaded into a spreadsheet. I have not finished the book myself, but I imagine if you could get it on loan from a business library downtown it would help you with identifying which (if any) strike would be the best to take. In any event, as you say, sharp moves such as those caused by programs are opportunities for MMs to strip or add premium to the options. If nothing else, one should watch carefully what is happening to the price of the option as well as it's sisters. That is, if you are looking at the Jan 945 put with the OEX at 943 I would try to pay attention to the pricing of the 940 put and the 945/940 calls. Say the market is experiencing a sharp move down and they are stripping the calls but not adding (much) to the puts, then it's reasonable to presume that the MMs strategy is that the selling is transitory...it has little strength. CBOE MMs are rarely fooled. In any event, I would be reluctant to enter a position during a program because I probably would be 'paying up' for the position if it is in the same direction as the program and if it was contrary to the program I would be uncertain as to "when" the motion would slow. Again, it's more of an art than a science to determine whether or not you are in the middle of a program-guided move.

To: ViperChick Secret Agent 006.9 who wrote (32732)	1/10/1998 12:08:00 PM
From: Electric	Read Replies (1) \| Respond to of 58727

Lisa, From what I understand what occurrs comes swift and without notice, generated electronically, kinda like a vending machine if you allow my crude example.. If there is a descrepency then the market makers fill it electronically. I very highly doubt that there is a program that can beat the programs in the trading pits. If there is a difference between the futures and cash, then buy or sell programs hit and fill the difference almost instantaneously. MY very humble approach is to follow the general trends, not the intra-day, it seems to me that the intra-day is controlled by a higher being so to speak for the sole benefit of the few that are in position to take advantage. Beating the computer is difficult if not impossible. I have done alot of study and although I dont have a mechanical system, my conclusion is we cant beat the intra day on a regular basis, but we can profit from following trends, like Don's and Nemers systems tell them.. for what it is worth.. E E

To: ViperChick Secret Agent 006.9 who wrote (32732)	1/11/1998 5:34:00 AM
From: Dwight E. Karlsen	Read Replies (1) \| Respond to of 58727

they will jack the premium up...you buy but then the market bounces back up they strip the jacked up part of the prem as well as normal prem. You weren't posting to me, but I certainly know what you're saying. Am just reading Friday/Sat. posts now because of the "bonk" attack on SI Friday night prevented me from signing on..finally gave up trying. I have, on one volatile day last Fall, experienced a costly lesson on the volatility premium. I saw the market was rebounding off a deep low very fast, so I put in a market order for calls on a stock (COMS), as the stock was rising very fast. The stock actually closed about a point higher than it was at the time when I bought the calls, yet the call price closed the day lower than what I paid. I was buying the next strike up. I'm thinking it also has to do with simple supply/demand, in addition to volatility. Since it seems from my observation that most people like to buy just above (out of) the money (risk/reward can be very attractive there), then the demand causes premium spikes. For days such as Monday, volatility will obviously be high, so that's going to add premium right there. Then if/when the market starts to come off a bottom, calls just out of the money are going to be very expensive. I'm thinking that for going long calls Monday, I'm going to go for at or in the money. Paying up for some intrinsic value may be the best way to avoid paying too high a price intraday, particularly on a high volatility day such as Monday will undoubtably be. DK