Let’s Go Long – November 15, 2011

[nickola.pazderic]

With volatility over 30, options prices are rich. (I'd like Ernst to chime in here).

In any case, an easy hedge in these conditions is to sell premium against robotic holdings.

Using this calcuation:

[k/(S1-C)-1](100%) (please let me know if this equation is not accurately transcribed)

K=strike price
C=call price
S1= beginning stock price



I find that I can sell premium for 10% gains going into Friday!

[ernsttanaka]

With volatility over 30, options prices are rich. (I'd like Ernst to chime in here).

It is only rich if the Historic Volatility for the next 20 days (or so) is below an annualized 30% volatility.

IV is forward looking while HV is looking back in time.IV is the expected, while HV is the realized.

To find out if IV was correct you will need to slide the HV graph back (20 to 30 days)

check this for a read on how the vix is calculated. http://www.cboe.com/micro/vix/vixwhite.pdf

[nickola.pazderic]

Thanks Ernst. I'll read this, and (based on my experience) I'll understand it in about a year!