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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Esteban who wrote (636)	1/30/1998 6:06:00 PM
From: Madpinto	Read Replies (2) \| Respond to of 2241

A farther out of the money put option brings in more premium and increases the likelihood of being assigned in the event of a rebound that would make call writing attractive. But in the absence of a very substantial rebound, the 17.5 is a losing bet compared to the 15. Why this pricing ????? Think of it from the perspective of the buyer. The buyer of the 3/17.5 put has all the risk of being short stock up until 17.5. Accordingly, the put buyer would not want to pay very much for protection above that price. On the other hand, a buyer of the 3/15 put receives protection relatively quickly (above 15) and therefore is willing to pay a substantially higher premium. In addition, as the seller, you cannot make more on the put than the price you sell the option. You have the potential to make about twice as much on the 3/17.5 put than on the 3/15 put. Selling another 3/15 put to equalize the maximum possible return increases your risk significantly.

To: Esteban who wrote (636)	1/30/1998 6:41:00 PM
From: ----------	Read Replies (1) \| Respond to of 2241

Esteban: Ahhh. Pardon my inverted response. I'm sure others will give a better answer, but I call it the leverage factor. You threw me off course. You want to use options logically, with a legitimate strategy in mind.<g> Most buy them for speculation. In that case, they are looking for the max leverage play. Typically, the farther in the money an option is, the less premium included in the price. Re-work your numbers substituting "percent return on investment" instead of looking at dollars. Hope this is of some use. Doug