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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: Art Stone who wrote (10718)	7/23/1998 9:18:00 PM
From: Steve Robinett	Respond to of 13594

Art, <<Say, the stock price is 130, would Oct 125 call and Oct 135 put have the same price given the upward trend? >> If we're talking about real world options, the 135 put and 125 call would not be priced the same. Most stocks--especially AOL--have been going up and options get their premium skewed to the call side by supply & demand. So the calls would be priced higher even though they are equal distances out of the money. FYI, volatility is normally defined as the standard deviation of the daily change annualized. It is read as a percent. If you check at www.cboe.com, you can get the volatility of any underlying issues. Combined with the other pricing components--carry costs(rates), stock price, stike price and time to expiration--it's a simple trick to plug the variables into any of the numerous models on the web and watch the impact of a change in any variable but the skew due to supply & demand isn't usually allowed for in models and it can be significant. Also, volatility is not "a measure of the probability of the price of the underlying security going up or down substantially in price prior to expiration." Volatility measures past changes in the underlying issues. Implied volatility measures the expected volatility of the underlying issue as expressed in the option. Differences between past volatility and implied volatility are often useful to understand. Best, --Steve