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owner-realtraders@xxxxxxxxxxxxxx wrote:
> The supply demand factor is one, but also there is a great reluctance f’
or
market
> makers to sell into these kind of markets. If they are going to sell t’
hey
are
> going to get a good price. Been there, done that. Also if the market ma’
kers
were
> so happy to sell this high volatitly on Wed. they had to buy them back ’
on
Thurs
> in order to sell them higher. Same thing on Friday. Unlike the public’
,
Market
> makers will pay any price to cover their short options. If they don't t’
hey
are
> out of business in a hurry. It would not be unusual for some market mak’
ers
in
> the OEX pit to have $500,000 swings in their accounts on days like the ’
past
two
> or three.
> RAY RAFFURTY wrote:
> ’
> > -----Original Message-----
> > From: dbtg <dbtg@xxxxxxx>
> > To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> > Date: Friday, August 28, 1998 9:15 PM
> > Subject: Re: Last bounce, 50 minutes left, Sell, Sell, Sell
> >
> > >I agree with your basic point re:volatility's huge influence on opti’
on
> > >price.
> > >But, the VIX closed higher today! Seems like the closing option pric’
es on
> > >Thursday reflected the fact that the SP futures closed at a substant’
ial
> > >discount to the cash. I was taught to look at the SP futures as the ’
major
> > >determinant on OEX premiums, except near expiration.
> >
> > Could you elaborate on this point? Is there a specific mathimatical
> > relationship or is it a seat of the pants type of thing?
> >
> > >Other than that, I know not why.... maybe option buyers
> > >decided the premiums were too high & they organized
> > >themselves into a union and called a strike (intended).
> >
> > Options are affected by supply and demand just like anything else.
> > Sometimes we forget that it it is not the volitility that sets price ’
but
the
> > demand for the option. In fact a good way to think of volility is in’
terms
> > of supply and demand. High demand = high price = high volitility’
, be a
> > seller. The reverse is also true. Also, remember that if you are
mesuring
> > volility in terms of the VIX, it is derived from only 8 contracts (Th’
e
front
> > month puts and calls bracketing the current cash value of the OEX and’
the
> > same second month options) so it can be an imprecise tool.
> >
> > >Nevertheless, this type of option pricing suggests a
> > >change in attitude, which might just be an indication of
> > >an end to the downside, at least temporarily.
> >
> > Well, maby.
> >
> > >I put more importance to the above than the 'oversold' indicators.
> > >Just as the market soared a few thousand points while
> > >being in a perpetual state of 'overbought', it can do the
> > >reverse in a few weeks or months of oversold condition.
> >
> > Absolutely, the best way to make a small fortune out of a large one i’
s to
> > follow "overbought/oversold" indicators. Just ask the bears for the ’
last
4
> > years or so.
> >
> > Good luck and good trading,
> > Ray Raffurty
> ’
> ’
Mitch Ryder
Ynos@xxxxxxxxxxxx
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