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Strategies & Market Trends : From the Trading Desk

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To: Robert Graham who wrote (2313)	1/17/1998 2:13:00 AM
From: Robert Graham	Read Replies (1) of 4969

Oh yes. One more thought on option expiration... There is the effect of the MM exersizing options that were written by covered call writers. The exersize turns into a net sale of stock. The greater the open interest of the CALL option, the more likely there will be enough covered call writers for this effect on the stock. So the net effect on the stock will be to place downward pressure on the price of the stock which will happen on that options expiration Friday, which was mentioned in my previous post. Now, if the option was written by a naked call writer, then the sales of the stock equal the purchases of the stock related to this option exersized by the MM. It is just that the volume in the stock will rise due to this activity over Friday and the following Monday. So there will be that initial short by the MM on Friday. Monday that naked option writer chosen by lottery has to go out on the open market to purchase stock to be delivered to the MM who exersized the option. This will cause upward pressure to be placed on the price of the stock on that day. Bob Graham

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