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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Monty Lenard who wrote (9218)	8/10/2000 12:25:31 AM
From: John Pitera	Read Replies (4) of 436258

Monty you are mistaken when you think that a put position that is covered is done in puts ...does not have to be the case and ultimately options can only be effectively hedged by market makers with the underlying instrument. I worked in conjunction at times with options desks at both citibank and chase and FX options are hedged with spot FX or forward positions. same with stocks. gary did not say cover the puts, he say cover the position which is the underlying exposure that one has in a derivatives position. and I got news for you if you are long CSCO puts you are short the stock. SInce the position is ultimately only a variation on being short CSCO common, to offset profits in a profitable put position, that could disappear with a price rally in the underlying stock someone has to get long the common. a retail investor will normally just unload the options, but the market maker will need to get long CSCO to lock in the profit of the puts. anyone with 56000 puts will not sell them normally they will hedge in common. John

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