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Technology Stocks : DELL Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: jjs_ynot who wrote (223)	3/20/1998 12:31:00 PM
From: lin luo	Read Replies (2) \| Respond to of 2578

You don't really need to go to options to hedge. You can just simulate options by playing the underlying securities themselves (to add or reduce positions according to the parameters of options). The options markets has a liquidity problem (too thin for the big positions). So, the big guys usually go to the OTC markets to do the swaps to hedge, if they really understand swaps. Others simply don't do anything. All the 5-feet small investors play options markets and usually get burned, because they don't understand it. You can't just use Black-Scholes' model to apply the real world. Besides, the spread will kill you just by bid-ask spread. On the other hand, Black-Scholes' model is not quite right. (even though they got Nobel price for that). It is the underlying securities they did not model correct. Stocks or markets tend to be more persistant (or linear in one direction than normal, in a plain english)most of the times, where human tends to be anti-persistant (or nonlinear). We change our views too quick than normal (white noise). So, the best way to play options is to buy long-term far out-of-money options.