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Technology Stocks : Newbridge Networks

NN 13.78

-1.9%

1:17 PM EST

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To: Ian@SI who wrote (3932)	3/30/1998 10:42:00 PM
From: Brett Nelson	Read Replies (4) of 18016

Ian - Unfortunately, I agree with your analysis. Volume in the April 25 calls was greater than the open interest, suggesting that they were sold, not bought. Given the corresponding volume in the April 20s, someone put on a huge bear spread for around $4 3/8. If NN is higher than 25 come April 20th, this position will lose $5/8. This position will start to make money when NN drops below 24 3/8 and reaches maximum profit at $20 and below (i.e. bear spread returns the original debit of $4 3/8). This suggests someone is either: 1. Extremely bearish on NN (i.e. they know about a major event or are comfortable speculating on it) 2. Are trying to hedge a long position in the stock (but unclear why they wouldn't buy the April 25 put for 7/16-11/16. This would offer same risk (around $5/8), would cost the trade less in transaction costs, and would offer "unlimited" profit potential (theorteically stock could go to zero and option would be worth $25). This position scares me. Someone is betting that NN will re-test its 2/4 low at around 20 in the next 3 weeks. Am I missing something here?

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