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dave,
there are several option gurus who can answer it better. i'll make a simple attempt.
option premiums are based on the underlying volatility. Since the underlying volatility
of oex (VIX) is 23.35 as of close. It means, you can expect a movement of 23.35*sqrt(1/12) =
6.73% in a month. With OEX at 630, that means you can expect 42 points movement in OEX
in either direction, i.e. 588 and 672. Since the ranges are high, thus the premiums of
even 20 point out of money options will be high !
Read McMillan's option bible for detailed info.
p.s.: volatility is stated on annual basis. To derive for another period, say month,
we multiply it with the square root of the time period as measured in 1 year.
So, for 1 month, we calc sqrt(1/12), for 3 month sqrt(1/4) = 0.5. Thus, volatility
for a 3 month period is HALF that of annual volatility and not 1/4th. Thats a fact which
many traders miss.
hope it helps
thanks
mudit
--- makkems@xxxxxxx wrote:
> thanks mudit, have any idea why then oex options are so expensive?
>
> dave
>
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