I think that what he is saying is that in the short term (ie before expiration tomorrow), it is better for those institutions to systematically sell a small part of their MSFT holdings in order to keep the stock price below the 95-100 range because of the large number of calls at the 95 and 100 strikes. Say you have 1,000,000 shares of MSFT. You wrote 100 July 95 call contracts and sold them at less than 1 per contract when MSFT was in the mid 80s. If MSFT goes above 95 to, say, 98, those contracts are worth 3 on intrinsic value of the underlying stock (ie, you could exercise the call, and turn around and sell the stock for a $3 profit per share). Then you are in a situation where option holders will either sell those contracts, or exercise those contracts. At 100 shares per contract, those 100 contracts represent 10,000 shares, or 1% of your holdings of MSFT. You would rather systematically sell, say, 10,000 shares to keep MSFT below 95 than to risk those contracts being sold for 3 or exercised.
Something like that. But with more zeros. =) |
