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<DIV><FONT size=2>Options prices tend to have a real convexity problem as you
get out of the money more and more. That is, the further out of the money, the
greater the implied vols are used to compute the value of the option. I played
some games with the numbers, and using a 40% vol level, when amazon was at 138,
the options should have been worth near 38, and the puts essentially worthless.
Currently, the puts should be worth about 10, and the calls less than 1/2. But,
because the vols being used to compute the way out of the money options are way
high, you get these strange percent returns.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>This does not mean that the market makers make anything.
Nobody is betting on 40 point out of the money puts going into the money in a
month!</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>By the way, there is an options calculator on the web at: <A
href="http://www.warp9.org/nwsoft/bscholes.html";>http://www.warp9.org/nwsoft/bscholes.html</A></FONT></DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV><FONT size=2><BR>---<BR>Steven W. Poser, President<BR>Poser Global Market
Strategies Inc.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>url: <A
href="http://www.poserglobal.com";>http://www.poserglobal.com</A><BR>email: <A
href="mailto:swp@xxxxxxxxxxxxxxx";>swp@xxxxxxxxxxxxxxx</A></FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Tel: 201-995-0845<BR>Fax: 201-995-0846</FONT></DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
kohath
</DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A href="mailto:gledhill@xxxxx";
title=gledhill@xxxxx>Judith Gledhill / Mark Oliver</A> ; <A
href="mailto:ist@xxxxxx"; title=ist@xxxxxx>Ira Tunik</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Cc:</B> <A
href="mailto:realtraders@xxxxxxxxxxxx";
title=realtraders@xxxxxxxxxxxx>realtraders@xxxxxxxxxxxx</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Friday, August 13, 1999 2:37
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: Amzn Call/Put 100
Strike</DIV>
<DIV><BR></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>I am sorry but the cash price of the share is
relevant to the option price</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT><FONT size=2>the example just doesnt
make sense for the call to be so expensive it must be in the money or a long
maturity likewise for the put to be so cheap</FONT></DIV>
<DIV> </DIV>
<DIV>Ok, Here's the chart. Let me know what your opinions are as to why
the call had more than twice as much loss in value compared to the
put. Yes, the put gained value because the stock dropped from 138 to 90,
but, look at the relative difference in loss/gain of value. The call
lost 1600% value, the put only gained %700. </DIV>
<DIV>The call was $38 in the money, the put was $38 out of the money at the
start. They are both Aug 100 (In this case, at least, the H is for Aug,
T for 100)</DIV>
<DIV> </DIV>
<DIV> </DIV>
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<BLOCKQUOTE
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<DIV><FONT face=Arial size=2> </DIV></FONT>
<DIV>The point here is, the call went from 40 to 2.5, a 1600% decrease in
price, </DIV>
<DIV>the Put went from 1.5 to 10.5, a 700% increase in price. What I
was pointing</DIV>
<DIV>out was that, as a market maker, had I sold you 1 call at 40 and 1 put
at 1.5,</DIV>
<DIV>I would still be ahead 40 - 2.5 = 37.5, 1.5 - 10.5 = 9, 37.5 - 9 =
28.5. So, </DIV>
<DIV>I would have a 28.5 X 100 = $2,850 profit for each of a call/put
combination sold.</DIV>
<DIV>That is why I said the price of the stock is irrelevant. Yes, the
stock dropped</DIV>
<DIV>significantly, but, look what the options did. Yes, there is more
to being a </DIV>
<DIV>market maker than this simple illustration, but, there is a distinct
advantage</DIV>
<DIV>to selling verses buying.</DIV>
<DIV>Kohath</DIV>
<DIV> </DIV>
<DIV> </DIV>If you feel that the stock price is irrelevant, I'll take
the other side of your trades all day long. The conversion
reversal would have kept the puts and calls in direct relationship to one
another. It looks to me like the calls started in the money and then
ran out. Half a truth doesn't prove that you are right. Ira.
<BR>kohath wrote:
<BLOCKQUOTE TYPE="CITE"> It's irrelevant where the stock was then and
where it is now. The point is,Selling always brings in a higher
percentage than buying, always! Becauseof the melting value of
options, but, with selling there is limited profit withunlimited
risk!Kohath You left out one very important fact. Where was the
stock at point one and at point 2 in your example. Why don't you post the
stock chart too? Ira.
<BLOCKQUOTE TYPE="CITE">
<STYLE></STYLE>
Charts of AMZN 100, Call, Put.Call went from $40 to $2.50, put went from
$1.50 to $10.50.As can be seen, same strike, same time frame. This
is whyselling is more profitable than buying, but, selling involvesmuch
higher risk. These two charts also show the marketmakers have a
distinct advantage because of the meltingvalue of the options.Now if we
had only sold 100 contracts of the YZZHT on July
16th!Kohath </BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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