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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: chic_hearne who wrote (2408)7/7/2000 10:58:43 AM
From: John Graybill   of 436258
 
The floor guys have a different set of rules than most other players. He has to be pretty much balanced by the end of the day. In this example, where he had to buy a lot of puts, he would have to balance his position by either buying an equivalent amount of stock or deep-in-the-money options.

Whether the stock goes up or down at that point, his net value of his position of put options and stock stays pretty much the same. He makes a little profit on the transactions by timing his purchases, playing (ignoring) the spread, etc.

BTW, this technique of selling mountains of puts to force the specialist to buy stock is a documented case of market manipulation for stopping a plunging stock. Fleck reported a story last year when Dell tanked on the open and Goldman Sachs started selling unbelieveable amounts of puts "for a client". I can't remember when it was exactly by looking at the charts, but the description was from a floor trader, and it was pretty explicit.
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