'Overwriters' Under Expiration Pressure
By James J. Cramer
09/21/2001 09:59 AM EDT
We see the footprints of insurers fleeing stocks everywhere. Many of us are surprised to see how much equity the insurers, especially the European insurers, owned.
Until this incident, the insurers were quiet holders of stock. For years what they liked to do was own stock and sell call options against the stocks, so that they would get that additional revenue. It was always an extremely bullish strategy, in that it locked them into a long position (you can't just be naked short calls, too risky).
I think that strategy, which has prevailed for years, is now reversing itself. The pressure you might be seeing today, expiration day, is the insurers unwinding these positions, selling the common underneath, rather than rolling over their calls to another month. These "overwriters" could be behind much of the selling this morning.
Typically, this week the insurers would be letting their calls expire and selling new calls. Now I think they are just bolting from stocks as expiration is upon us.
That could be causing the additional selling pressure we are seeing today, expiration day. |
