The availability of options brings a stock onto the radar screens of many who might not otherwise take note of it. A few possibilities relating to how others than fundamental investing longs view the availability of options, might include:
The availability of options attracts some traders, who might otherwise not be aware of the stock, in that it establishes the stock as one for which a number of different trading vehicles are available.
Some traders who look to both short a stock on a trading basis and to be able to trade it down often, want a stock that has sufficient market breadth and volatility to allow numerous trades over a period of time. The existence of options, and the fact that options are being written on more than one exchange, to them can be an indicator that at least some in the professional investment field (the options exchanges) see the stock as being one of expectedly sustained higher volume.
To a degree, existence of options can also reduce the direct shorting of a stock by those who are "betting against" the company's success on a fundamental basis, in that they would now have available other investment vehicles (buying puts, selling naked calls, etc.) with which they can make their sentiment-based investment, and they are not constrained to shorting the stock itself as the only investment avenue to follow.
To day traders, who might short a stock as it goes down for a small period of time (maybe even minutes), then cover as the stock turns and then go long as it moves up, optionability is an indicator of potential market breadth and potential short-term (minute-to-minute) volatility, which they would feel might be turned into successful, successive trades, whether they decided to trade the stock itself or the options themselves.
It would not be at all surprising to find out that some of the most vocal "shorters" that post their scare messages on RB and other places are of the latter category. It would not be surprising to learn that once they cover their shorts they ride the subsequent price increase up as "longs". For them, if their objective for a good quick short trade was 3/4 of a point, and by blabbing they could scare another 1/4 of a point into the drop, they'd be adding 33% to their profit. It can be especially effective in a stock that's made a big upward run on increasing volume, for which they know not all shares are in "strong" hands. It's disturbing, but it's part of the real world.
JMHO.
Steve |
