| NOV 1988
Option Valuation Model by Steve Barr
Option Valuation Model by Steve Barr Radix Research Limited 1652 Mount Batten Pl. Victoria, B.C., Canada V8S 5J9 (604)592-5308. Product: Stock options evaluation program. Price: $250 Canadian. Equipment: IBM PC/XT/AT Have you ever bought a cheap out-of-the-money call, say for 10 cents and watched it tank, slowly, so slowly, until it was worth nothing? Sure, the initial logic (you did use logic didn't you?) said that 10 cents for the contract was ""all"" you could lose. But that turned out to be the entire capital invested: 100% down the drain. Was that contract so cheap? I started playing the options market that way, sometimes doubling my investment, and just as often giving back a substantial amount on the next trade. How would you like to be able to evaluate option premiums in a more objective manner? You better believe the floor specialists use more than a guessing game! On-floor computers keep them informed of how any given change in the underlying security price will change the value of the different option strike prices and expiry dates. By using an accepted options evaluation formula you will, although not guaranteed profits, be able to tilt the odds more in your favor, by knowing more about how the floor traders at the center of the action are thinking.
by Steve Barr
Technical Analysis of STOCKS & COMMODITIES
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