Amazon.com, Inc. (AMZN) Message Board

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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 239.26

-1.0%

Jan 30 3:59 PM EST

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To: Don Westermeyer who wrote (760)	11/12/1997 5:36:00 PM
From: Bilow	Read Replies (2) of 164685

I can't believe I used ESP to announce the options trading on this puppy two days early. My take on the effect of options trading is that mostly they increase volatility in the stock. It's essentially cause options increase nonlinearly in value when the stock moves in a profitable direction. Consequently, the hedge on the other side has to increase the hedge. This tends to magnify market moves. Eventually, the option holder exits his position, and the hedger unwinds. Then the volatility is removed. The overall effect is to increase volatility for short periods of time, say under 1 month, while leaving longer term volatility more or less unchanged. This is all under the assumption that retail clients are net purchasers of options. If they are net sellers, (for instance selling covered calls and covered puts,) the short term volatility is reduced. -- Carl

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