Bob, let me add my thoughts and questions on this holding back a stock at options expiration.
You guys have been talking about the traders or specialist or MM's holding back the stock. I've always felt it would be the large holders of the stock that hold it back, ie the funds, firms, banks, etc. Most of these guys can and do wrtite covered calls.
First off, let me explain, I'm talking of the average company here, not the Intel's and Dell's. Maybe one trading at 25 with 20M share float and trading 400,000 shares a day. If a fund took a large position in this type of company, I think they could easily manipulate it to their advantage.
For example, assume a fund had a 1M share position in this stock (4% of the float) and they had written covered calls with a strike of 25 expiring today and the stock is at 26 1/2. Instead of spending the $1.5M to buy the options back (or rolling them out), wouldn't it make sense for them to put enough of their shares on the market to drive the price down to 24 7/8? Probably wounldn't take more than 200,000 shares. Let the options expire worthless, and then during the next week, buy their position back driving the price back to 26 1/2. They'd lose nothing but just saved themselves $1.5M.
What do you think of this type of "holding back a stock"? What is the hole in the logic? Do you think this could happen or not? Or is it just a coincidense that so many of these stocks just seem to close an 1/8 below a major strike price?
Steve |
