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Biotech / Medical : Guilford (GLFD) - Steadily Rising
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To: Steve who wrote (197)4/3/1998 5:25:00 PM
From: Dr. Bob   of 496
 
I do not interpret this as "a statement that he believes the stock price is going to fall". Let's say he sold calls at a strike price of 25 and bought puts at a strike price of 20. The cost should even out if the stock is in the 22-23 range, so it is a zero-cost collar. If the stock goes up, his upside is limited to 25. If it goes down, his downside is limited to 20. All he is doing is locking in a price range, without actually selling the stock at the present time, for whatever reason (perhaps he is using the stock as collateral, doesn't want to sell it, but the lender wants to make sure it will still be worth something if he defaults on the loan - just speculating, and this probably isn't it, but it's an example of why someone might want to do this). If he thought the price was going down, why not just sell the calls and pocket the money, or sell the stock?

But thanks for pointing this out to us - the more info the better!

Bob
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