Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Greg Higgins who wrote (11346)	8/8/1999 5:18:00 PM
From: NateC	Respond to of 14162

There's an excellent interview with options trader/expert Jeff Yass, in a book entitled "The New Market Wizards" au. Jack Schwager. Yass explains how MM's and other traders can be "had". For example...on p 406 he tells how the options for Combustion Engineering were traded on the Pacific Coast Exchange, but they are relatively low volume. One morning, his group received a call from a board broker who said there was an order to buy several hundred options and inquired whether Yass' firm would take the other side (would sell the options). The stock was trading at $25, and Yass agreed to sell 300 of the 25 calls at approximately $2.50 (not bad for an ATM call). Ten minutes later however, trading in the stock was halted, and there was an announcement that the company was being taken over by a European corporation. When trading resumed several minutes later, the stock reopened at $39, and Yass' firm was out "over $350,000 in a matter of minutes". (by selling the calls they had to deliver stock at $25....but would have had to buy the 30,000 shares at $39 to do so. It turned out the SEC got their money back for them.....the buyer was identified....it turned out to be a high level foreign executive who didn't realize that he was doing anything illegal....and he returned the money. In another example...same chapter, same book.....he shows how you should always be paranoid that someone has better information than you......as in the case of an employee of Marion Labs who had inside information that Dow was going to make a bid to takeover Marion. He bought 500 July 25 calls at $1....and the next day the options were worth $10 each...(his $50,000 became $500,000). Many such insiders are supposedly unaware they are breaking the law, but since they come to the options market first, the options market makers are the ones on the other side who are getting picked off. great book, highly recommend it (got it via David Wright, thanks Dave)