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Politics : Formerly About Applied Materials

AMAT 260.78

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To: Ian@SI who wrote (33802)	1/15/2000 7:41:00 AM
From: w0z	Read Replies (2) of 70976

1. Options are traded through Specialists who are charged with maintaining an orderly market. There's always a buyer and a seller. To see what the specialist does to ensure that he's not taking on excessive risk, read any of McMillan's books on Option Strategies. Ian, I don't think there is always a buyer and seller if you exclude the Market Maker. I have bought 100 options at a time (MTSN for example) when there was zero activity in that option. I belive I am buying these options from the Market Maker...not another individual, because I was able to do so in a reasonably short time (hours not days). I'm sure they make tons of money on options since most people lose money on them. I guess they are just willing to take the risk that occasionally they will lose one. Fortunately they've lost a LOT to me and I have no sympathy for them! 2. Deep in the money options in most Semi Equipment companies would be highly illiquid. And if they're truly deep in the money, there's little, no or even a negative time premium. If you've written Covered Calls, then those shares can be called away at any time after you've written the option. ...especially if the time premium goes negative. At that point there's little point for the option holder to continue holding the option rather than take your shares and sell them. If you wrote naked calls, you've got 3 days max to deliver sufficient shares after being called. Ian, here is a perfect example of your point. I bought 10 NVLS Jan 50 calls last June. As the expiration date approached, I had two choices: sell the option back to the MM, or exercise it. Since I thought NVLS was a good long-term investment and since this was in a taxable account, I decided to exercise it and at least hold the stock until June to get capital gains rates. I do most of my options trading in an IRA account which has no tax implications. BTW, you can take long-term gains on LEAPS which are held more than a year but there are none available on any of the stocks I trade options on.

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