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From: abeles@mhuxi.UUCP
Newsgroups: net.invest
Subject: CBOE 100 Options
Message-ID: <264@mhuxi.UUCP>
Date: Wed, 3-Aug-83 10:27:55 EDT
Article-I.D.: mhuxi.264
Posted: Wed Aug  3 10:27:55 1983
Date-Received: Sat, 6-Aug-83 03:57:56 EDT
Organization: Bell Labs, Murray Hill
Lines: 26

I have recently been approached by someone who got my name from
an alumni list (we are both alumni of MIT) and who is a technical
analyst.

He suggests investment in options on the CBOE 100 index, and claims
that the market is due for a decline.  Thus he suggests the purchase
of puts.  My feeling about this is that the conventional wisdom today
seems to be that the market is in for a "correction" (alias, decline).
Anything that is conventional wisdom I feel must already be accounted
for in the markets.  

Another aspect of this is the "Random Walk".  For those who haven't
read "A Random Walk Down Wall Street", by Burton Malkiel, the idea
is that it has already been shown that no investors or investment
advisors or institutional investors have been able to do any better
than a randomly selected portfolio over the long term.  That is, ther
are no "experts".

Malkiel includes technical analysts in his study and finds that 
they are likewise not experts.

Thus, I am wary of this type of investment, regardless of the risk.
Incidentally, while risk-aversion is the usually preferred investment
posture, it is not obvious to me that preference for risk (gambling)
is not entirely inappropriate in the short run.  Any comments?