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Afternoon Cheer

Posted on July 14, 2008

Got a question earlier regarding options in FRE. Namely why are puts down with the stock down. Are market makers in there manipulating?First off, if MM's had that kind of power, I would still be one.As to what happens to cause this, options essentially have two price drivers. One is the price of the underlying instrument, the other is the volatility. Volatility can sometimes move so much as to more than offset a directional move. This happens during volatility spikes. And it happens again when that spike evaporates.Bottom line is many do not seem to grasp the concept that volatility is not s...

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