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Re: implied volatility

  • To: "Maurice Zandbelt" <maza95@xxxxxxxxx>
  • Subject: Re: implied volatility
  • From: "A.J. Maas" <anthmaas@xxxxxx>
  • Date: Sun, 25 Apr 1999 05:16:15 -0400 (EDT)

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<DIV><FONT size=2>Regards,<BR>Ton Maas<BR><A 
href="mailto:ms-irb@xxxxxxxxxxxxx";>ms-irb@xxxxxxxxxxxxx</A><BR>Dismiss the 
".nospam" bit (including the dot) when replying.</FONT></DIV>
<BLOCKQUOTE>
  <H2 align=center>&nbsp;</H2>
  <P align=center><FONT face=Arial,Helvetica><FONT size=-1>The options tool of 
  choice among traders and investors around the world.</FONT></P>
  <P align=center>&nbsp;</P>
  <CENTER></CENTER>
  <H2 align=left>Technical Analysis of Stocks and Commodities</H2>
  <P><FONT face=Arial,Helvetica><FONT size=-1>Recently, <U>Technical Analysis of 
  Stocks and Commodities</U> turned Option Wizard inside out for their March 
  1998 review. What did they conclude? 
  <P><FONT face=Arial,Helvetica><FONT size=+2>"Not likely to find a less 
  expensive, more complete alternative for option trading support."</P>
  <P><FONT face=Arial,Helvetica><FONT size=+2>"Extraordinarily enough, this 
  package also includes a backtesting capability." </P>
  <P><FONT face=Arial,Helvetica><FONT size=+2>"Option Wizard does not compete 
  with packages offered at $2,000 to $7,000, or even the odd $1,000 options 
  package, but at $99 to $199, it does stand out in its price range." </P>
  <P>
  <H2 align=left>The Option Fool Review<BR>Topic: Percent to Double and a 
  Software Review of<BR>The Option Wizard Black-Scholes Excel Template</H2><FONT 
  face=Arial,Helvetica><FONT size=-1>
  <P>Dear Option Fool: </P>
  <P>I want to find the percent that a stock has to rise in price for the price 
  of the option to double. The only broker I've spoken to that had heard of it 
  referred to it as "bull ****". Where can I get this fertilizer for options 
  that I'm considering buying or selling? A service or software? Name names 
  please. I appreciate your time. </P>
  <P>The reason I'm so hot on the percent figure is that I'm a new and cautious 
  trader and have been told by someone very successful with options that he may 
  miss a lot of deals but he wins a lot more than he loses when choosing short 
  term options at or below 6% to double. </P>
  <P>Hot &amp; Heavy for Percent to Double </P>
  <P>Dear Double H: </P>
  <P>It's really not that easy. The factors that go into the valuation of an 
  option's premium vary moment to moment. Plenty of theory has been offered as 
  the solution (have you checked out the heft of McMillan's 1000 pages lately? - 
  he also has a new book coming in the fall, BTW) but none of it is fool proof. 
  </P>
  <P>You need a theoretical model to crank out the calculations yourself each 
  day. That's much better than relying on someone else's stale data. If you have 
  a spread sheet like EXCEL, you'd integrate a Black-Scholes engine with simple 
  percentage formulas to get what you want. The finished product will give you 
  the percentage needed for the stock to move in order to double the price of 
  the option. </P>
  <P>The theoretical model may be a tad difficult to program. If you want to 
  really get it right, the EXCEL option spreadsheet I like for options is called 
  OPTION WIZARD. It is available for $99.95 from its creator, John A. Sarkett. 
  It is a 4.0 or 5.0 Excel template for either IBM or MAC that is a customizable 
  Black-Scholes valuation engine. </P>
  <P>The format is easy to use and understand. You enter various inputs to get 
  the results. What I like is how one can select the price increments of the 
  output table. The program allows you, for instance, to create a table that 
  shows the theoretical values for a range of stock prices (I have it going up 
  in ticks of 1/8) in the vertical direction and the effect of time decay on the 
  horizontal axis (the Option Wizard web site has illustrations). </P>
  <P>Such a "tear sheet" is great for traders away from their computers 
  (reminiscent of floor trader "print-outs" that would be pulled out for a quick 
  consult in the pit). Someone told me that this was silly these days "given the 
  electronic ability to continually recalculate quickly" but I think that it has 
  wonderful application still. I'm not always in front of my pc when checking on 
  option prices and imagine that most working folk with "regular" jobs can't put 
  their bosses on hold while they crank up their $400 option valuation models in 
  the middle of the day. </P>
  <P>But for $99, they can get a table of results to tuck into their pockets for 
  pulling out while on the phone with their brokers at lunch time. I think the 
  spread sheet is well worth the look. </P>
  <P>Unlike the stand alone modeling programs, you must have Excel to make use 
  of this template. Spread sheet jocks will point that out, though, as a big 
  positive. They will love to tinker and build on it. </P>
  <P>The Option Wizard is featured on its website. There is a question and 
  answer session with its creator as well as a very interesting statistic on the 
  percentage of options that expire worthless: "Economists at the Options 
  Clearing Corporation estimate that 30% - 33% of stock and index options expire 
  worthless, and perhaps as much as another 20% - 33% are offset at a loss. The 
  remainder? OCC staff says some 12%-15% are exercised, and 55% are offset by 
  closing sale (this includes the 20% to 33% offset at a loss). These figures 
  can vary widely month to month and security to security, they say." </P>
  <P>Visit Option Wizard. </P>
  <P>PS. The program may be downloaded and demonstrated free. </P>
  <P>Call Option Wizard offices at 847.446.2222 or e-mail to jas@xxxxxxxxxxxxxxx 
  or jas@xxxxxxxxxxxxxxxxxx </P>
  <P>Please mention that you were referred by Hubert Lee, The Option Fool. 
  </P>Date: Wed, 27 Mar 1996<BR></FONT></FONT></BLOCKQUOTE>
<CENTER>
<HR>
<FONT face=Arial,Helvetica><FONT size=-1>CHICAGO -- Option Wizard is a 
registered trademark of Sarkett &amp; Associates, Inc. -- 111169</FONT></FONT> 
</CENTER>
<DIV align=left>&nbsp;</DIV>
<DIV align=left><FONT size=2></FONT>&nbsp;</DIV>
<DIV align=left><FONT 
size=2>===================================================================</FONT>&nbsp;</DIV>
<DIV align=left><FONT size=2></FONT>&nbsp;</DIV>
<DIV align=left><FONT size=2>&nbsp;Welcome!&nbsp;Option Wizard¨&nbsp;&nbsp;v. 
7.2&nbsp;Copyright 1997 Sarkett &amp; Associates, Inc. Option 
Wizard¨&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Our 
goal:&nbsp; to help you earn more money through options...quickly, simply, with 
understanding.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;1.&nbsp; 
Please read this page and Option Wizard¨ homepage:&nbsp; <A 
href="http://option-wizard.com";>http://option-wizard.com</A>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;2.&nbsp; 
Password 
Protection&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Select 
Calls-Puts Worksheet.&nbsp; Under Tools, choose protection, unprotect sheet, 
type in 
password.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Save 
copy, e.g., WizXYZ.xls.&nbsp; Work from the copy.&nbsp; Save the 
original.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;3.&nbsp; 
Variables&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;1.&nbsp; 
On the calls-Puts worksheet, [not here !] simply fill in the 6 (boldfaced) 
variables in column 
B:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;*Stock 
price&nbsp;&nbsp;Treasury bond 
rate&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;Strike 
price&nbsp;&nbsp;*Volatility&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;Expiration 
date&nbsp;&nbsp;Dividend dates, 
amounts&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;* 
unprotected in demo version for demonstration 
purposes.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;4.&nbsp; 
Volatility:&nbsp; how much your stock moves up and 
down.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Definition:&nbsp; 
the % a stock may be up or down 1 year from now based on past price 
movement.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;To 
figure:&nbsp; Find your option price (<A 
href="http://www.cboe.com";>www.cboe.com</A>).&nbsp; Follow ÔGoal SeekÕ 
directions on Calls-Puts 
worksheet.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Compare 
with historical volatility (calculated on separate worksheet) to for 
overpriced-underpriced comparison, current market to 
historical.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;What 
does Option Wizard¨ tell you?&nbsp;&nbsp; 8 main 
things:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;5.&nbsp; 
Your fair value options price -- based on your 6 
inputs.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;6.&nbsp; 
Your options price change, with change in underlying and time, i.e. 
decay.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;7.&nbsp; 
Your percent to double, or how much your option may change compared with 
underyling, other factors being 
equal.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;8.&nbsp; 
Your in-the-money 
probability.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;9.&nbsp; 
Your delta:&nbsp; if your stock moves $1, how much your option is expected to 
move.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;10. 
Your option price:&nbsp; underpriced or overpriced vs. history?, i.e. 
relationship of implied (now) volatility to 
historical.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;11. 
Strike&nbsp; tables.&nbsp; Options prices by strike 
series.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;12. 
Spread tables.&nbsp; (Spreading is a way to quantify risk, and lower cost.&nbsp; 
Your also give up home run 
potential.)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;What 
now?&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;13.&nbsp; 
Work with Option Wizard¨.&nbsp; Save a separate worksheet for each option you 
follow, e.g. 
WizJPM.xls.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;You 
will soon know more about volatility, decay, etc. than the average 
broker!&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;14.&nbsp; 
Customize&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Experiment.&nbsp; 
Adjust days from now, price increments as you wish.&nbsp; Link to ascii text 
exports of your 
stocks.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;15.&nbsp; 
For further study, 
bibliography:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Visit 
our online discount bookstore at <A 
href="http://option-wizard.com";>http://option-wizard.com</A>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Options:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Chriss, 
Neil A.&nbsp;Black-Scholes and Beyond -- Option Pricing Models 
(new)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Gastineau, 
Gary&nbsp;The Stock Options 
Manual&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Jarrow 
and Rudd&nbsp;Option 
Pricing&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;McMillan, 
Lawrence&nbsp;McMillan on Options 
(new)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;McMillan, 
Lawrence&nbsp;Options as a Strategic 
Investment&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Natenberg, 
Sheldon&nbsp;Option Volatility and Pricing 
Strategies&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Smith, 
Courtney&nbsp;Option 
Strategies&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Technical 
Analysis:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Technical 
Analysis&nbsp;John J. 
Murphy&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Trading 
for a Living&nbsp;Alex 
Elder&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;16.&nbsp; 
Additional 
support&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Step 
one:&nbsp; review this page and Option Wizard¨ web site:&nbsp; <A 
href="http://option-wizard.com";>http://option-wizard.com</A>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;At 
http://option-wizard.com, use "site 
search" to search for your key word on FAQ (Frequently Asked Questions) 
page.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Questions:&nbsp; 
Option Wizard¨&nbsp;&nbsp;Email <A 
href="mailto:jas@xxxxxxxxxxxxxxxxx";>jas@xxxxxxxxxxxxxxxxx</A>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Questions:&nbsp; 
Microsoft Excel¨&nbsp;&nbsp;PC 425.635.7070; Mac 425.635.7080 6 a.m. to 6 p.m. 
Pacific 
time&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;17.&nbsp; 
Option 
Definitions:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Delta, 
the hedge 
ratio&nbsp;&nbsp;D&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Delta, 
the hedge ratio, the change in premium over change in the 
underlying.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;If 
a stock moves $1, the call or put $.50, the delta is 
.50.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp; 
calculations in the call-put 
worksheet.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Gamma&nbsp;&nbsp;G&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Gamma, 
the change in delta over change in the underlying.&nbsp; 
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;If 
a stock moves $1, the delta $.05, the gamma is 
.05.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;gamma.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Rho&nbsp;&nbsp;r&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Rho, 
the change in option price over change in the risk-free interest rate.&nbsp; 
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;For 
Europeans (non-dividend options), as rates increase, call values increase;&nbsp; 
put values 
decrease.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;rho.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Theta&nbsp;&nbsp;Q&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Theta, 
rate of option decay, day to day, all other things being equal.&nbsp; 
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Accelerates 
near 
expiration.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;In 
calls-puts worksheet:&nbsp; set Ôdays from nowÕ to 1 to see theta across entire 
table of options 
values.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Vega&nbsp;&nbsp;u&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Vega, 
how much option price changes per 1% change in volatility.&nbsp; 
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;If 
volatility changes by 1%, option changes by .20, vega is 
.20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;vega&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Percent 
to Double&nbsp;&nbsp;% = 
2x!&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;A 
popular option buyerÕs concept, i.e. the %&nbsp; the stock must move to double 
the 
option.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;18.&nbsp; 
The Black-Scholes 
formula:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Call 
=&nbsp;S * N(d1) -&nbsp; (e^-rt) * K * 
N(d2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Put 
=&nbsp;(N(d1) -1) * S + (e^-rt) * K * 
(1-N(d2))&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;S 
= stock 
price&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;K 
= strike 
price&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;N 
= cumulative normal distribution 
function&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;e, 
natural log, or 
2.718282&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;r 
= risk-free interest 
rate&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;t 
= years remaining to 
expiration&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;19.&nbsp; 
Printing without colored boxes:&nbsp; 
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Select 
entire spreadsheet:&nbsp; Format:&nbsp; Patterns:&nbsp; None.&nbsp; Hit 
OK.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;20.&nbsp; 
Parting 
thoughts:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Remember, 
option decay works for the seller, against the buyer.&nbsp; See the tables and 
charts.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Consider 
selling comparatively high volatility (.80 and up) to put decay and regression 
to work for 
you.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Best 
wishes for success in your trading and investing, 
J.A.S.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;Options 
Symbols&nbsp;Calls&nbsp;Puts&nbsp;PRICES&nbsp;PRICES&nbsp;PRICES&nbsp;PRICES&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;January&nbsp;A&nbsp;M&nbsp;5&nbsp;A&nbsp;65&nbsp;M&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;February&nbsp;B&nbsp;N&nbsp;10&nbsp;B&nbsp;70&nbsp;N&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;March&nbsp;C&nbsp;O&nbsp;15&nbsp;C&nbsp;75&nbsp;O&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;April&nbsp;D&nbsp;P&nbsp;20&nbsp;D&nbsp;80&nbsp;P&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;May&nbsp;E&nbsp;Q&nbsp;25&nbsp;E&nbsp;85&nbsp;Q&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;June&nbsp;F&nbsp;R&nbsp;30&nbsp;F&nbsp;90&nbsp;R&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;July&nbsp;G&nbsp;S&nbsp;35&nbsp;G&nbsp;95&nbsp;S&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;August&nbsp;H&nbsp;T&nbsp;40&nbsp;H&nbsp;100&nbsp;T&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;September&nbsp;I&nbsp;U&nbsp;45&nbsp;I&nbsp;105&nbsp;A&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;October&nbsp;J&nbsp;V&nbsp;50&nbsp;J&nbsp;110&nbsp;B&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;November&nbsp;K&nbsp;W&nbsp;55&nbsp;K&nbsp;115&nbsp;C&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;December&nbsp;L&nbsp;X&nbsp;60&nbsp;L&nbsp;120&nbsp;D&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;STOCK 
MONTH PRICE, 
e.g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;LLY 
AO&nbsp;Lilly Jan 75 
calls&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR></DIV></FONT></FONT></FONT></FONT></FONT></FONT></FONT></FONT></FONT></FONT></BODY></HTML>
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Date: Sun, 25 Apr 1999 05:03:20 -0400
From: michael arnoldi <marnoldi@xxxxxxxxxxxxx>
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To: A METASTOCK GROUP <metastock@xxxxxxxxxxxxx>
Subject: pattern recognition
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has anyone been able to come up with a metastock formula for certain
pattern recognition: head & shoulder, triangle ?

mike arnoldi