UnThreaded | Threaded | Whole Thread (71) | Ignore Thread Prev | Next
Author: 1000 Big funky green star, 20000 posts Top Recommended Fools Feste Award Nominee! Coverage Fool Supernova Phoenix 1
Mission Team Member CAPS All Star SN Explorer 1 Mission Team Member Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10413  
Subject: Re: Getting Paid While You Wait Date: 5/31/2003 1:10 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
Hi XfatOx,

Also, tell me this: If you walk into a room where everyone is insuring against a bad event happening, and they're demanding $X for that insurance, why would you sell the insurance for $X when you believe that bad event is more likely to happen than the rest of the room believes?

When you sell a put you are giving the buyer of the put the right to sell his shares at a set price or strike price - Shares the buyer of the put owns. The insurance policy is for the buyer not the seller.

The premium is not set by the buyer or the seller so the analogy you are using is flawed. The premium is based on implied volatility or what the option market expects in terms of a stock's future volatility not valuation. It is computed using an option-pricing model such as the Black-Scholes option-pricing model.

I hope this helps explain it a bit.

tom
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (71) | Ignore Thread Prev | Next

Announcements

2013 Feste Award Voting Begins!
Who will win the 2013 Feste Award? Vote now for the Fool that most exemplifies the Fool Community mission of Learning Together!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Tax Strategies

TMFPMarti-Feeling Good
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement