Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Margaret Mateer who wrote (13061)	7/24/1998 11:06:00 AM
From: Chris	Read Replies (4) \| Respond to of 42787

sure peggy.. let us know. when i rebuttal vs dennis, i want to be fully informed.

To: Margaret Mateer who wrote (13061)	7/24/1998 11:09:00 AM
From: ViperChick Secret Agent 006.9	Read Replies (1) \| Respond to of 42787

hey Peggy what happened to Favor's July 24 top???? not going to enter the contest because P&F is still just X & O's whirling around in my mind i keep saying straddles are the way to go on internuts..but I havent really tested what happens to the premiums..

To: Margaret Mateer who wrote (13061)	7/24/1998 5:56:00 PM
From: Chris	Read Replies (1) \| Respond to of 42787

priv msg on index weighting: The dow is a price weighted index. Most of the industry specific indexes are price weighted as well. The SPX, NDX, NASDAQ, Russell, Amex etc are capitalization weighted indexes. There are two major problems with price weighted indexes: 1. All stocks in the index have the same effect or power over it. For instance, if Kodak was up 4 and GE was down 4, the overall effect on the DOW would be nill while the SPX would get crushed. 2. Splits are tricky to handle on price weighted indexes. In a price weighted index, each stock has it's own divisor and the index is a function of the sum of these divisions. When a split occurs, the divisor of the splitting stock has to be adjusted so the overall effect of the split does not change the value of the index. This has an interesting and subtle secondary effect and those who trade options on price weighted indexes should be aware of this. After a split, the volatility of the index drops and hence option premium. The best example of this that I remember was when TXN last split and premium vanished from the SOX options causing everyone to curse the evil MM's. They should have been ready for it and could have profited. Cap weighted index values are roughly the sum of the market caps divided by a single divisor. This divisor is some times marginally adjusted as companies get added and dropped from indexes. Splits cause no change whatsoever. Well, I kind of got carried away on the split issue. The important thing was realizing the difference. That's why the Nasdaq, NDZ and SPX can all be going in one direction and the DOW the other. If the DOW was cap weighted, even with 30 stocks, this would occur much less often.