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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Joseph A. Aboaf who wrote (31811)5/22/2000 8:55:00 PM
From: Paul Fiondella  Read Replies (1) of 42771
 
Those Puts

Well the stock sank during the AM so let's try this scenario. Let's say it wasn't Novell.

Let's assume it was a trader or an institution writing the calls.

The only thing left is if they shorted the stock and used the puts to cover.

-1- They shorted the stock at the time they wrote the puts, the highest the stock could have been on that day was 11. If they got 11 and the 1/2 point from writing the Put that was 1 1/2 pts profit. However they then took the stock today at 10 when it opened at 9. That erases 1 point from their profits. Now they had to dump the stock before it went down further. The stock moved down to 8 1/2 fairly soon this AM. SO their profit if they sold today would have had to be less than 1/2 pt and possibly much less if they didn't get the absolutely best prices. This was a bet on volatility which didn't happen.

-2- Now the second possibility would have been an institution that sold the stock at a higher price days before selling the puts and used the Puts to cover. The manager would have been trying to make money from the short and the cover. Presumeably the purpose here would have been to rebuild the portfolio inventory at a lower price.

Both scenarios are bullish. In the first they bet against the stock and lost and in the second they wanted back into the stock.

The MMs would have been more likely to be part of -1- rather than -2-.

In any case anybody that got stock today from an exercised put, that didn't want it SOLD. By the end of the day the stock was trending up which is bullish.
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