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ALTAF JUMMA wrote:
> HI RTrs, Gonch, Dick Bryd, Greg Murray,
> Gonch- my mistake- commission on losing option trades would be less because
> a trader would let it expire worthless-thanks
> Dick Bryd -could you explain the mechanics of trading , software,data,broker
> used, commission paid - do you use Black-Scholes to determine whether option
> is undervalued , and buy only undervalued option. What is CPQ options.
> Greg Murray- again the same question - what are the mechanics of trading
> options, software etc - what software do you use to isolate equity options
> to trade - do you use Black-Scholes to determine fair value of an option.
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Ashif:
I usually don't scope these trades out with extensive T/A and a B-S
calculation. They are trades of opportunity. The opportunity presents itself
by the rapid, sudden, unexpected gap move in the stock. The rationale for the
straddle or strangle is that this rapid move is to an inherently unstable point
in the stock price. The stock will either continue in the trend of the move or
it will retrace. With large moves like this you can win enough on one leg to
cancel the loss on the other, or if you are real smart (read Lucky!) you can
leg out and make both ends of the position.
Dick
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