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

To: Frank Vessella who wrote (1026)	5/21/1998 7:15:00 PM
From: Porter Davis	Read Replies (2) \| Respond to of 1598

>>Can anyone help me concerning Stock Options? FrankV posed: "Basically, what I am trying to figure out, does the volume and open interest give an investor any indication as where the stock is heading? If you also know of any site where I can get more info.concerning open interest and volume or options all together, I would greatly appreciate it." Frank, I see you cross-posted this to several threads. Hope you get the answers you're looking for. Basically, open interest is a very important indicator as to whether an option series is viable for trading. Low open interest is a significant negative indicator. Large open interest and active trading can give a short-term look at which way a stock might move--if implied volatilities rise, the 'price follows premium' theory comes into play. As more buying occurs in a series and most of the pros have sold any longs they might have had, if they continue selling (short), they will have to cover by buying the underlying. This is especially marked in thinly-traded stocks with active option trading, rumoured take-overs, stock-split candidates, etc. If you want a really good resource for information on options, I highly recommend "Options as a Strategic Investment" by Lawrence MacMillan. Not easy reading, but it covers everything you need to know. -- Today the TSE, recognising the seriousness of the recent problems they've had in keeping everyone's positions current, announced they are implementing a dedicated 56K SL/IP line between them and their clearing arm. I hope it works, and I applaud their (belated) attempt to fix a chronic, serious problem. Barrick sure acted sick today, breaking below C$30 before recovering a little. This while gold was peeking above $300. It almost looked like something was up...another underwriting or something. Vols steady at (39,39) I didn't hear any news out of Ballard's AGM today; I hope the stock breaks out of this trading range. For the first time since we listed this puppy I'm net long premium, and as it sits in this range, I'm losing about $1K a day. ((59,56) Bell set another all-time high today before selling off a little. Still good two-way options trading. Retail is starting to roll up and out which is always one of my favourite patterns. Institutions seemingly can't get enough Bell, now that the banks are a little out of favour.(25,25.5) Btw, did somebody's dog fart last night? Something sure stunk up the thread around, oh...10:49. Happy trading. Porter E&OE

To: Frank Vessella who wrote (1026)	5/22/1998 10:27:00 AM
From: Vectra	Respond to of 1598

Well... I'm going explain two ways what these positions could represent or would provide for the participant, first if they are executed simultaneously this would be called a combination Long Straddle. The purpose of such a position would be one were you believe the market is about to move, but are unclear as to what direction, this type of position works well when the market has been particularly quiet and has just begun to move in a volatile fashion. Profit for such a position is unlimited once one of the break-even points is reached. If we consider these trades as separate entities or trades they are simply a call on where the trader believes the particular stock will be at or towards expiration. To answer your question if these positions were executed together a simplistic way of looking at the position would be that the stock in the purchaser's view would move, however as I indicated above they were unsure as to which way. Taken separately, the purchaser's view would be it is going higher (on the call purchase) or lower (on the put purchase). This being said these positions by themselves may have a limited impact on the equity market place, however without a sustainable increase in open interest, we're talking a daily increase of these type of purchases, in either the puts or calls the market will absorb these positions with little impact. Remember these positions could easily be taken on by someone who already held a position in the stock or was about to have a position in the stock and may not indicate a movement was forthcoming. The CBOE often broadcasts put/call ratios, however they are so close together that (from an overall market prospective) that I consider them useless in gauging the market's trend. V