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

To: Electric who wrote (35887)	3/3/1998 7:44:00 PM
From: Heg Heg	Read Replies (2) \| Respond to of 58727

Electric, I will make the assumption that you were talking about the price of the options as being too high, yes? One of the variables feeding into Black-Scholes is the volatility of the stock price. This is not a constant but changes over time. There are also different ways to calculate this volatility. With regard to DELL: The stock has moved so far and fast in the last days that the volatility has risen considerably. (One particular way calculates : within the last 14 days it has risen from 26% to 41%) This would push up the price of the options. What I find an interesting comparison is to compare the implied volatility of Puts vs Calls to see whether the MM has a bias towards one or the other. Since the same underlying stock (with the same actual volatility) is used (at the same instance of time), this could tell us something. Say, if the Calls were priced at 30% iv and the Puts at 40% iv it would tell us that the MM would like to sell plenty of calls (e.g. s/he does NOT believe the stock will rise!) and does not want to sell puts. Note that a slight bias towards higher priced puts is considered normal: Stocks drop far easier and faster than they rise so the risk on writing puts is considered to be higher. Regards Hý