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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year
PSFT 0.00010000.0%Oct 29 5:00 PM EST
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To: Melissa McAuliffe who wrote (1825)8/20/1998 1:08:00 PM
From: Chuzzlewit  Read Replies (2) of 4509
 
Good morning Melissa,

I agree with your point about the nature of the options, but beyond that, let's ask the more fundamental question: How is it possible?

Remember, we're not talking about one or two market makers dealing with a thinly traded stock. And we're not talking about a very short-term dip engineered to pick up a few thousand shares in stop losses.

So this raises the question about investors expectations. Assuming that the market makers were somehow actively depressing the price of the stock, and assuming the analysis is correct, then there are other people who are equally clever in figuring these machinations out. Like fund managers who would be buying by the truckload!

Now I only know of one way to lower the price of a stock -- sell lots and lots of shares. Now the market makers would have to be shorting like mad to accomplish this goal, and the shorts will have to be covered as the option positions are unwound. What I don't see is how they will make money on this deal. Presumably they will make money on the expiration of worthless calls and the exercise of in the money puts, but they will lose money on covering the short sale.

What I would dearly like to see is for someone to demonstrate to me how this can work in a competitive (non-collusive) manner, and failing that, show me how it can be pulled off collusively given the very large number of market makers.

I just have trouble buying into this conspiracy theory that always seems to be hatched when one of our favorite stocks is hammered.

TTFN,
CTC
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