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Strategies & Market Trends : Guidance and Visibility

AAPL 247.97

-0.2%

Jan 23 9:30 AM EST

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To: stevenallen who wrote (74992)	9/25/2002 12:51:08 AM
From: Ira Player	Read Replies (1) of 208838

stevenallen, There is another reason besides reducing the cost of employee options that drive a company to sell puts on it's own stock... When a market maker takes the other side of a put sell and buys them, he/she does not want to absorb market risk while they have them in inventory. To offset the risk that the stock will rise and they will lose money on the options before they are able to sell them, they hedge the puts by buying stock. The technique is referred to as being "delta neutral". They primarily make their money on the spread, not by taking directional positions. By selling a large number of in the money puts, a company can create artificial demand for the stock, thereby shoring up a weakening situation. This is at best a short term help if the market is intent on moving down. It can be a short term halt that then draws in additional interest, if the weakness is truly short term. Ira

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