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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 229.12-0.2%3:59 PM EST
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To: epicure who wrote (9929)7/10/1998 5:00:00 PM
From: J.S.  Read Replies (1) of 164684
 
X - person (VBG),

I believe that option expiration consideration is a fine tuning
consideration that will not apply to AMZN next week. There is
too much interest from too many quarters.

Consider the size of the spread. When heavily traded, it is routinely
1/8 to 1/4 which is very low for AMZN, particularly in light of its
recent explosive volatility. It would be rather hard for option
players to exert enough control.

I think the reason that stocks often go to a nearby option strike
price is due to the fact that as expiration nears the option is worth
more as a "hedge" for short term trading than it is as a speculative instrument to take advantage of big movements in the stock price.

For example, with three days left there are
essentially three opportunities for news or broader market developments, however there are countless opportunities for
short term (as fast as a few seconds) trades. Say ABC stock is
at 50 and you have a put. You see very little reason for the
stock to make a big move. So whenever the stock goes to 50 or
below and you get a short term buy signal you buy 100 shares with no risk. As the stock bounce around you sell when you get a short term
sell signal above 50. If I have a call at 50 I do the converse, shorting without risk. What this does is keep the stock very
close to 50. We repeat as needed and can eventually milk the option
for more than its worth as a leveraged proxy for the underlying.

If next week is quiet on the bigger picture issues than we may
see this effect.

Good Luck,
Joe
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