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

To: ViperChick Secret Agent 006.9 who wrote (43486)	5/19/1998 9:28:00 AM
From: Kevin	Read Replies (1) \| Respond to of 58727

>>> can someone explain to me what this means and (and why these particular numbers???): <<< Hey woman, how are you? All that means is that they expect a slight gap open based on Fair Value data. 'Upper arb point' and 'lower arb point' are the upper and lower bounds that I have mentioned to you. It's the 'buy' and 'sell' signals for arbs. Hope all is well. Closing for my house is June 1...can't wait. Haven't watched alot of my usual things, but I noticed INTC has a possible $5 opp to the upside $85 target). I may play it with in-the-money June calls (or at-the-money). See ya.

To: ViperChick Secret Agent 006.9 who wrote (43486)	5/19/1998 9:33:00 AM
From: Patrick Slevin	Read Replies (1) \| Respond to of 58727

Looks as if s/he is basing moves in one index to correlate to the other. Like, 1 SP8M point move is equal to 8 DJIA points. But as for the "arb" stuff, I don't have a handle on that. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ An interesting e-mail, which I don't completely understand either... .................................................. This has ref to posts about how SPX/SPM8 premia are expanding and most major indices are going the one way while SnP goes the other. ÿ 1. Data: ÿ Index components: ÿ a. Only 5 stocks are members of both OEX and NDX. That leaves 190 others to define the trend on that index. b. 65 stocks in the NDX are NOT represented in SPX (so only 35 of the 100 are in the SPX). c. MSFT and INTC today are responsible for 12 of the 13 down points in the NDX as of this minute - other gainers and losers cancel each other out. d. (MSFT + INTC + CSCO + DELL) = 49.8% of NDX weighting. ÿÿÿ Above 4 = under 5% of SPX weighting. e. Correlations between "widely followed" and better representative indices tell the sector-rotation tale distinctly: ÿ MSH = Morgan Stanley Hitech Index NFT = Nifty Fifty Index. ÿ See how the near term tech/others correlation has broken down while the Nifty Fifty, OEX and SPX remain tightly correlated. SPX and INDU have always been an inferior correlated pair compared to SPX/OEX and SPX/NFT. ÿ 2. Inferences: ÿ a. SnP 500 benchmarked funds (otherwise) are "cooking the book"ÿ (managing just this correlation today/last week by being underweight technology while NDX benchmarked funds are being eaten alive). This is a double whammy for tech funds coz COMP has higher YTD ROI than SPX or INDU so far this year; thereby being more difficult to beat than for the SPX folks - and attract fund inflows away from SPX benchmarked funds. ÿ b. I'd still prefer to look at actual data before jumping to broad brush-stroke conclusions based on one major index. Sector rotations do happen, and index charts pick these up easily. ÿ Just because technology is heading down does not necessarily mean the SPX will also go down. If tech is down, short the NDX or Pacific Tech or MSH - not the SPX or NY Comp. ÿ I am yet to see statistical validity of this often-expressed "market truth" (technology leads the market) for the SHORT term. Long term, given the component weightings in almost all major indices, everything has a +0.8 or higher correlation - because we mostly look at the 18 year bull market and a lot of these companies didn't exist before then. ÿ c. The PREM mismatch in my opinion is just a glaring signature of volatility expansion about to hit the market. ÿ Finally, the PREM mismatch statement needs to be put in perspective. ÿ PREM today has been within historically valid bounds and quickly corrected by sell/buy programs. A critical assumption in computing PREM is short term interest rates and transaction costs. While transaction costs are finetuned over time, it is likely that players would be tinkering around with a higher than normal interest cost component based on FOMC tomorrow - thus seeking higher-than-normal premium to consider a trade profitably mispriced between future and stock. Max misprice today was 0.31% on the NYA - not even close to the major mismatches we've seen during crash-down or crash-up days, when it goes to +/- 1%. By itself, 0.31% = juicy misprice (0.31% rotated 3 times within a day = 1% ROI for the day - which is GOOD for a day's work by the computer, when annual returns have to be only 25%-30%) - but not uncommon. ÿ Next email will have a chart to show where we stand on the volatility assumption made above...