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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (55311)	4/9/1999 10:19:00 AM
From: Knighty Tin	Respond to of 132070

Wayne, I actually use B-S when I price my long options. If they are undervalued, I avoid them. <g> Seriously. But it doesn't figure in which cos. options I buy. It does sometimes figure in which of several options on the stock I buy. The underlying is by far the most important factor for long calls and long puts. And you have to temper it with common sense. For example, paying 40% for an at the money Yahoo put makes no common sense whatsoever, no matter how much you hate the stock. But paying 5% for an out of the money Presstek put may make sense when it is about to fall from $200 to $50. I have never done it rigourously, but my unscientific observation has been that selling underpriced options and buying overpriced options, ala B-S, is superior to doing the opposite. Sometimes options are overpriced when there is something going on beneath the surface. And sometimes they are underpriced when you can't even get the insiders interested in playing. Of course, undervalued or overvalued depends upon the inputs, too. Another observation is that market makers are all using valuation models and buying undervalued, selling overvalued. Since they are regularly carried off in a stretcher when they lose all their money, doing the opposite of what they do has some logical appeal. <g>