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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: The Perfect Hedge who wrote (567)1/22/1998 10:13:00 PM
From: Madpinto  Read Replies (1) of 2241
 
Do you believe that mm's or specialists work with the option mm's or specialists to hold back stocks near option exp?
I traded on the floor of the CBOE for five years. I have never heard of anyone conspiring with the stock specialist or mm's to pin the stock. The reason we see the stock pinned so often sometimes does have something to do with options though. As options get close to expiring, the holders of those options typically try to sell them even if the option is in the money. Most option buyers do not want to take delivery on the stock. In most cases, the public owns the expiring options. As they sell these options, the mm's hedge their position with stock. For instance, lets say a stock is trading at 56 with an hour to go before Jan expiration. Holders of the Jan 55 call may try to sell out of their positions rather than take delivery of the stock. The mm's will buy the calls and sell stock knocking it down towards 55. When the stock gets to 55, the calls usually get offered at 1/16. MM's offer stock at 55 1/8 because they can buy the calls at 1/16. Conversely, they bid for stock at 54 7/8 if the Jan 55 puts get offered at 1/16. In this way the stock gets pinned at 55.
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