Paulo, I have pointed this situation out many times in the past on the Prodigy Classic bb on Intc-Bounce. The stock and options MMs work togather to "ordinarily" bring the options down on a strike price that will be beneficial to the options MMs. You can equate this little game with a poker dealer who is playing with a marked deck. Most of the MMs are allowed to trade for their own accounts while making the market in their stock(s) or options. In the options, the MMs want to bring the price to a strike that will "waste" the greatest majority of them while giving them the greatest opportunity for profits. Remember, on the Nasdaq we do not buy from each other; we sell to and buy from the MMs (MarketMakers). Hence, they play the spreads like they see fit and they move things to the strike price at expiration that they see fit. If the MMs have large open interest in calls at certain strike prices, while they have relatively small open interest in puts at certain strike prices, time and again they will rest them on expiration day at the most favorable place for them - usually either on or within a quarter point of a strike price or about the same situation in the middle of two strikes. Again, I've been doing this for a long time and by watching the open interest in all current month strike prices in calls and puts, I can often tell ahead of time where we are headed. Many will tell you, even on this bb, that supply and demand dictates all prices of securities. Don't let anybody fool you with that. It just means that they are very, very inexperienced in the markets. What dictates the prices is the MMs.
They deal the cards. Now, of course, once in a while this doesn't hold true - like when Intel comes out with projection of great earnings, etc. and the price opens up the next day 4 or 5 points. But, even here the MM has the best of it. He has these on his books at lower prices and he has profited right off the gap. To add insult to injury, you can't even buy the options until 15 more minutes after the markets open. Do you or anybody else on this bb remember the big deal about the Nasdaq MMs selling short enormous amounts of stock that they didn't even own while positioning themselves to drive prices down and make enormous profits? Happened recently and a big investigation was started. Well, enough rambling for now (ggg) - but, some of the things I have said here will hopefully help you and enlighten many others.
To beat the option MMs, you have to put yourself in his place and know what he will do given the circumstances of the markets and the amount of time left until expiration. Good trading. Jack |
