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Technology Stocks : Network Associates (NET)

NET 202.13

+3.3%

Dec 22 3:59 PM EST

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To: Doug who wrote (4950)	4/15/1999 10:30:00 AM
From: Just_Observing	Read Replies (1) of 6021

Yes, it's very likely that you will be put the stock when you are selling deep in the money puts and there is not time premium. The other day it was cheaper to short the stock than to sell puts. (The bid side of the put was less than the cost of shorting the stock). Whenever that happens, be prepared to be put the stock at any time. Here are the mechanics of how it happens: Suppose you are a market maker (MM). When someone sells puts, the MM is buying them (bearish position). To hedge his risk the MM buys the stock (bullish). That way as the stock rises, his puts lose money but his longs hedge his risk. And vice-versa. Whenever it is in his advantage to put you the stock and close out the transaction, the MM will. And it is only to his advantage when the time premiums are near zero (otherwise he can sell his puts to someone else and sell the stock at the same time). And he will exercise when the premiums are actually negative i.e., when the bid is lower than the shorting price. That's what has been happening with NETA.

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