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Technology Stocks : Nam Tai Elec. (NTAI) -- Ignore unavailable to you. Want to Upgrade?

To: David Leith who wrote (1302)	3/26/1998 12:45:00 PM
From: DanD	Respond to of 1696

David, Looks to me like you have thrown the baby out with the bath water. You have rejected the basic assumption that Options are valued as a complex Markov process with lots of inputs the main one being the stocks volatility. The basic underlying priciple of option valuation is probability and that is mainly determined through historical volatility. What you are doing is assuming what will happen and performing valuations based on that assumption. So your so called "logic" is really just a bunch of assumptions with a logical conclusion ballanced on top, and it has nothing to do with Black Scholes. Yes there is a valuation difference between a capped warrant and a pure option, but the market has shown us that it is most likely a discount in the volatility. The warrants trade at around a 30-40 while the actual 3 year historical is around 60. This range has been fairly constant and so I believe will remain the way to value. Therefore there is no ceiling on the value of these warrants. Whatever your logic tells you. If the value of the stock went to 30.4 tommorow then the in the money value alone would be $10. That is a posibility, not a high one, neverthless a posibility. That is what Black Scholes is about measureing possibilities and placing a value on them. Dan D.