magician

You have the idea right here, but you're misusing the language just a bit.

A clarification for the tyros who will read this and be confused:

An option pricing model such as Black-Scholes gives the prices of put and call options as a function of five variables:

1. current price of the stock (more generally, the underlying asset),
2. exercise price of the option,
3. time remaining till the option expires,
4. time-value of money (i.e., current interest rates), and
5. variability (volatility) of the stock's price.

The current price, the exercise price, the time to expiration, and the time-value of money are all observable; the volatility on which the option price depends is future volatility and is, therefore, unobservable. Thus, the volatility used in option pricing models is expected volatility; that volatility of the stock's price that the market expects will occur.

The market does not, however, sit down and settle on a volatility; it sits down and settles on an option price. Therefore, the volatility input to the model is the one that, with the known values of current price, exercise price, time to expiration, and time-value of money, will produce as an output the market price of the option. This is called the implied volatility: the volatility that the rest of the values in the model imply.

Thus, it is not AAPL's implied volatility that makes the options expensive; it is the (high) price of the options that makes the implied volatility high. It is the expected volatility that makes the options expensive. The implied volatility is, at best, an estimate of the expected volatility. (How good the estimate is depends on how accurate the option-pricing model is.)

Pretty catchy, eh?

cthree

I'm glad you cleared that up

kumainu

kumainu

Why do you think AAPL keeps going down little by little in the last few days? It's "supposed" to take off by Christmas time.

kumainu

Have you heard about Cisco's new iPhone? It's a completely different concept of phone, but Cisco has a trademark to the iPhone name. I wonder what Apple's new phone is going to be called?

kumainu

When AAPL dipped below $85 today, I bought more of it. I now have 5K shares of AAPL, that's a good chunk of money, and it shows how much faith I have in Apple.

meth

i'm thinking about getting back in this

cthree

This is a great time to buy. I think the bears are beating on it right now. Thus is the life of an AAPL investor. Come MacWorld and earnings time it will go nuts. I'd consider this the last good buying opportunity to get in if you want to cash in on the iPhone/iPod+phone and the blowout 1st quarter in 30 days.

I'm glad there are some short sellers out there because I want them scrambling to cover 4 weeks from now

5000 shares is a lot of scratch to you man.

meth

i kind of thought the same, but maybe the same won't happen this year. but IIRC AAPL went down last year after the macworld when they released the intel macs, and down again after posting record sales. i think i remeber this because i owned some back then and i remember thinking wtf.



see that downfall slightly after january.

Harpoon

www.888options.com has a good online calculator. Click on positions simulator at the top of the page.