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Technology Stocks : 3Com Corporation (COMS)

COMS 0.00130

-18.8%

Nov 7 11:47 AM EST

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To: Hua Xue who wrote (10581)	11/20/1997 8:40:00 PM
From: santhosh mohan	Read Replies (2) of 45548

Glenn and Santhosh, my question(open interests) continues: Hua: Perhaps this will make it clear. Let us say COMS hits $95 in early December, and the Options Exchange opens Jan 100 calls for trading. On the very first day of trading, the OI is zero. Now, Joe wants to buy 5 contracts at the asking price. The sale will be made by the MM who now has a short position. The OI is now 5. Subsequently Fred comes along and wants to write 5 contracts. He sells to the MM at the bid price. Now since the MM is closing or reversing his earlier short position, the OI would reduce by 5 to zero. But since Fred is establishing a new position, the OI will remain at 5. So it is not 5+5 = 10 OI. The question of market manipulation would arise if the contracts are written only by the MM (nobody else doubts COMS hitting 125 <G>). Now the MM would be interested in holding COMS below 100, perhaps by short-selling. Or, Fred could be an institutional investor which is trying to hedge a long position in COMS by writing the call contracts for premium income. Again they would be interested in temporarily holding down the stock. Hope this helps your pursuit of knowledge.

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