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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: 10K a day who wrote (29769)	8/21/1999 4:37:00 PM
From: Steve Robinett	Read Replies (1) \| Respond to of 41369

impristine, Options a little too sophisticated of you? Evidently. Here's a little clarification on what I meant by dollar values being immaterial in relation to Maxpain. Market makers on the Chicago Board Options Exchange spent their careers trying to earn the risk-free rate of return. They do this by being delta neutral, that is, balancing off calls and puts, buys and writes, as well as long and short positions in stock so they are not hurt by any movement in the underlying issues. So as far as their concerned, the price and movement of the stock are immaterial. If they are doing their job, they are neutral. Second, all Time Traveler did in his post was something you can do any day of the week, not just options expiration, and get the same answer. If you add together the price of a set of puts and calls of any expiration and go, say, 2 or 3 strike prices plus and minus the money, you'll notice that the set with the least total value is always the set nearest the money, that is, the set with the most pure premium in it. Though he doesn't believe it, that's all his numbers pointed out. The maxpain fallacy claims something--the market place, market makers, Mr. Big--manipulates stocks toward the option strike price with the greatest option open interest, so the greatest number of options will expire worthless. The price of the options has nothing to do with it. BTW, by Friday, the Maxpain point had moved to 100, yet AOL closed at 95. Why? Because AOL traded near 100 all day Thursday and the most options are always traded at the money. Best, --Steve