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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Jorj X Mckie who wrote (9378)8/10/2000 12:20:13 AM
From: John Pitera  Read Replies (1) of 436258
 
actually Gary was absolutely right lets say that CSCO is at
60 and the puts are worth 7 bucks apiece.

OK if the stock goes up and looks to be going to 75 what
does the holder of puts do to make sure that his 7 bucks
a put does not go to zero.

He can sell them but then the new buyer has to deal with
the same issue. WHen it's obvious that CSCO is going to
75 the only thing to do is to buy CSCO common the same
amount of shares as the puts translate into and the long
common stock position goes up in value while the puts go
down in value.

This is common knowledge and Cramer has written voluminous
pieces about it, so have about 50 other people who work
in the industry.

Monty is the clown. because a big put position acts like
a floor also any decline in CSCO then becomes incentive to
start taking profit on the puts by selling them and the
dealer who buys them will hedge their value by buying CSCO
common.

John
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