Re: AW: [RT] Market ESZ0

["John Manasco" <john@xxxxxxxxxxx>]

So in your example the theoretical value of the straddle is 10.096 and the 
actual value is 10.126, a difference of .30. Is this a significant enough 
difference to assume the straddle is overvalued? The value seems small and I 
often wonder if it's just noise or if my data is not as accurate enough to make 
a decision.
 
Thanks for your insight.
 
John Manasco
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  ----- Original Message ----- 
  <DIV 
  style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From: 
  Ira Tunik 
  To: <A title=realtraders@xxxxxxxxxxx 
  href="mailto:realtraders@xxxxxxxxxxx";>realtraders@xxxxxxxxxxx 
  Sent: Friday, November 17, 2000 8:32 
  AM
  Subject: Re: AW: [RT] Market ESZ0
    
  John Manasco wrote: 
  
    
    Ira, <FONT 
    face=Arial>From the spreadsheet you provided how did you 
    determine the straddle was overvalued?   <FONT 
    color=#cc0000>Look at the theoretical value of each option and compare it 
    against the price column.  Add the price of the straddle together and 
    compare it against the theoretical value of the straddle.  If the 
    theoretical value is less then the price then the straddle is 
    overvalued.  The price column should reflect a price midway between the 
    bid and the ask price.  The assumption being that the bid is 
    undervalued and the ask is overvalued based upon the Implied Volatility 
    being used.  Also, what is the relationship between the 
    price column and the last column?  There is 
    none.  The last column, POS, is the position column and would reflect 
    the number of options long or short. <FONT 
    face=Arial>Regards <FONT 
    size=-1>John Manasco 
    <BLOCKQUOTE dir=ltr 
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      ----- Original Message -----
      <DIV 
      style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From: 
      Ira Tunik
      To: <A title=realtraders@xxxxxxxxxxx 
      href="mailto:realtraders@xxxxxxxxxxx";>realtraders@xxxxxxxxxxx
      Sent: Thursday, November 16, 2000 
      12:54 PM
      Subject: Re: AW: [RT] Market 
      ESZ0 Maybe these three pictures will help you clear it 
      up.  One, the straddle is overvalued.  Two, the straddle 
      subjects you to twice the time decay.  Three, the straddle subjects 
      you twice the volatility risk associated with option valuation. The spread 
      sheet will show the current valuations, the second chart will show you 
      profit picture as it is today, not at expiration for the ratio back spread 
      and the third will show you chart for the straddle. It trading you want as 
      few uncontrolable variables as possible. Ira  
      

      
        
       
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