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As any input in an option model approaches infinity the price of the option
goes to the price of the underlying. So in a practical sense
the price of an option could not exceed the price of the underlying.
You create a textbook case where one of the inputs was negative and you
could model a price higher, but it would be a textbook example only.
<P>The other exception would be if some bizarre circumstances existed in
delivering the actual security... if deferred delivery would have some
value other than a simple cash price(such a voting right that might have
some extreme value that would occur at a future date than, again in theory,
you could model a value in excess of the underlying.
<P>From a practical standpoint, no way. From a textbook it doesn't
exist on this planet standpoint .yes it could be simulated.
<P>RAY RAFFURTY wrote:
<BLOCKQUOTE TYPE=CITE><STYLE></STYLE>
Hi RT's, Recently a friend
was discussing option trading and asked if the premium of an option can
ever be greater than the value of the underlying. My immediate answer
was no, because of the leverage involved an option will always sell for
a fraction of the underlying. He replied "But what about the time
value?" This started me
thinking. Can there ever be an option deep enough in the money, with
enough time value that the option's premium is greater than the value of
the underlying? I suspect it might happen with Leaps, possibly stock
options, but never with options on futures.
Perhaps the good Dr. OEX or other RTer can answer this.
Good luck and good trading,
Ray Raffurty</BLOCKQUOTE>
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</x-html>From ???@??? Wed May 12 21:28:27 1999
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Date: Thu, 13 May 1999 11:57:10 +0800
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From: kish <kish@xxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Singapore Stock Index
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Can anyone explain the following charts.
One shows the Straits Times Index with a Wave 5 sequence
and the other Shows the Morgan Stanley Singapore Index
showing a Wave 3 Sequence.
What does one do in a situation like this when equity values here
have more than trippled in the past six months.
Kish
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