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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 (32756)	1/11/1998 12:31:00 AM
From: Patrick Slevin	Respond to of 58727

I have not traded the DJX. To be honest I still get confused as to which is which. There is a DJ futures contract and a DJ options. I primarily trade the SnP Futures but my understanding is the DJ contract has less risk/reward and the DJ options are less subject to premium adding/stripping and so they also have less risk/reward. Therefore, if you are on the correct side you may have a better chance with the DJ than the OEX over time. As far as the viability of the OEX options; as I said, if you understand pricing (not an easy issue) you will have an edge. Otherwise, with the recent split in the OEX the only traders that I know of that wonder why traders are moving away from the OEX are CBOE members. Honest. I don't have my screens up right now, but if someone shorted the SP8X at the open Friday ....one contract...could possibly have made almost $10,000 if the position was closed at the low of 926. Just on one contract...a contract that could have had a trailing stop to lock in profits as the day went on. Meanwhile, I doubt an OEX position at the money gave one that kind of flexibility. As I say, I don't have my screens on but if you bought 10 OEX puts at the open would you have made $10K from open to the highest bid during the day? Maybe. Would you have had the opportunity of deciding where you should put stops as the market declined? I suppose. Would your price levels have anything to do with reality? Of course not. If I sold an SP8H contract at the open and moved my stop down to 960...then 955 as the futures went below 950 I would have locked in a 7 point gain. As they went below 945 I may have moved my stop to 950. Below 940 my stop to 945. Below 935 to 940. Below 930 the stop to 935. With OEX options, the split has the OEX moving in a tighter range...allowing the MMs to control the pricing in a tighter range. The futures could move 4 points and the OEX less than 2 while the options fluctuate all over. Where's my stop? The OEX drops 2 points while the futures drop 4 and my puts increase in value less than 75 cents. Who needs this? The equivalent drop in the DJ for a 4 point futures drop is about 35 points. Would you like to make 75 cents on this knowing that if you were wrong and the market had moved up instead your loss probably would have been over a dollar as MMs strip premium along with the direction of the move? It's worse than a casino. If you are right we will give you something if you are wrong we take everything. Of course this is from the buyer's perspective, not the seller's. In any event, once the split occurred taking advantage of swings in the market became more difficult, as option pricing became more narrow. OEX trading became more and more popular because of wide swings in the price of the options. Those swings are not there any more. More conservative, position players trade DJ options. Traders looking for plays which do not factor in CBOE MM pricing look at the DJ or E-Mini contracts. Traders looking for action have vacated the OEX almost entirely and stick with SnP futures because fighting the OEX pricing is too difficult since the split. If you were to go back to where the OEX was at it's current levels before the split...I don't think you will find there were many OEX players there. I remember trying it myself years ago. It was just too damn hard. The thing just does not move. Meanwhile, the MMs strip the daylights out of it. So the only way to make money is to sell the options and that requires margin. ~~~~~~~~~ I have to take a moment to apologize to those who still think OEX is viable as a vehicle for day-traders. Pure and simple we disagree. I still take OEX positions but a few months ago I traded OEX almost every day. In the past month I have made 2 trades. It is just too much work for too little potential gain. I think you will see volumes dry up as people fly away from it and then liquidity vanishes and manipulated pricing becomes rampant...if it has not already.