Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : AOL Options for the Bearish -- Ignore unavailable to you. Want to Upgrade?

To: White Shoes who wrote (14)	3/2/1998 3:52:00 PM
From: The Duke	Read Replies (3) \| Respond to of 33

WS, McMillan's book is a must read before you begin to play with serious money (whatever that means to you) with options. Of course it a huge book and you will have trouble reading it over the weekend. :). A few things people need to understand before proceeding. 1) synthetics/arbitrage. In other words, what can be substituted for what. I read things here on SI that befudle me all the time. Some people will suggest elaborate option strategies which all really add up to owning a put, or shorting the stock, etc. In this thread someone posted that puts are now more expensive than calls, or some such thing. nonsense. conversion and reversal arbitrage ensure that puts and calls on the same underlying at the same strike price always the same time premium (before interest rates are factored in). you must understand the relationship between all the possible arbitrages. 2)implied volatility. this is also crucial. this is what really tells you whether an option is expensive or not. Never buy out of the money option unless you are of the opinion that IV is too low (and vice versa) 3) price patterns, at expiration, of all the basic spreads: bull spread (put and call) bear spreads (put and call) straddles and strangles. Learn to be able to draw a quick, back of the napkin, graph at expiration of any combination. 4) price patterns, BEFORE EXPIRATION, of the basic spreads. this is the holy grail of understanding options. It is unrealistic to think on can learn this without significant experience, but forewarned is foretold. This stuff is complicated, it requires understanding the greeks: delta, gamma, omega, and vega. Many people have no idea how there option portfolio will react to a certain move in the underlying if it occurs before expiration. this is very important. ESPECIALLY WHEN GOING NAKED SHORT! suppose you think AOL will never hit 140, so ill sell some april calls at 140. tomorrow AOL goes to 130, you think , "no problem, my calls are still out of the money" wrong. your calls may have skyrocketed, and worse, they are growing at a faster and faster rate, wrt the stock. Good luck to you, options are the most interesting creatures on wall street. I like them because they have very objective qualities (given an underlying price) and can be understood rationally with mathematics and probability. some day this f-ing piece of s-t stock will trade for under $5 and those of us who are patient (I havent been patient enough) and persistent (im hoping to hang onto my balls long enough) and who hedge ourselves right with options, should be able to squeeze some sizable profit out of this salamander eventually. the key will be to be able to stay in the game for a long time, not to erode too much capital, but be there with a substantial bear position when the s-t finally hits the fan. duke

To: White Shoes who wrote (14)	3/2/1998 4:23:00 PM
From: James F. Hopkins	Respond to of 33

White; I don't mean to sound like a know it all, but you do need to focus on one thing and get it right . and make money on a consistant basis with it before you take on the whole specturm. -------------- I have seen people do good paper trading then when they start with real money lose like crazy. ( this happens a lot) ----------------------- You seem to want to do puts..( or short ) so to speak, well keep it simple till you know you can beat the market. --------------- You will have to look at a lot of options ( AS THEY TRADE ) to understand ( the hidden spread ) as I call it..it's the way options skew when the stock itself reverses. Due to the floor bidding that you don't see. They can see the amount of buy/sell orders not filled yet, and they know which way she is going to trade, at least for the next 30 min or so, When I worked AOL I had two screens running all the time..one on the stock and one on the options, and I can tell you for a fact the floor traders on this stock know what they are doing. ----------------------------------- I simple wanted to warn you off on uncovered calls, and save you some real pain. But that may have been hasty as I doubt your broker will let you write them anyway. Unless he is a real jerk. ------------ Jim

To: White Shoes who wrote (14)	3/2/1998 5:10:00 PM
From: yard_man	Respond to of 33

Spreading is a good way to take advantage of the premium. You, of course give up some potential profit to do so. Selling an at the money call and purchasing a call at 10 points higher for the same expiration, for instance. I'll take a look at some prices and post tonight. You do this for a credit. Suppose for each contract pair you get a credit of 7 points. Your potential gain then if the stock moves down by expiration the 7 points you received for establishing the position. If the stock goes up to infinity you can only lose the spread, 10 - credit, 7 = 3 points per contract. This is a good way to sell premium and let time work in your favor. Your profit is limited to the credit, however. If I can find time to get a broker and AOL doesn't break down -- I may try this.