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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Just_Observing who wrote (28981)	9/1/1999 3:47:00 PM
From: Bill Holtzman	Respond to of 74651

Maybe the private buyer hedges on the open market.<EOM>

To: Just_Observing who wrote (28981)	9/1/1999 4:13:00 PM
From: t2	Read Replies (2) \| Respond to of 74651

Just Observing, According to the complete STREET.com story---it is MSFT that was selling. These options traders that are being quoted in this article are saying it was MSFT doing the selling---and they should know. (NOTE in the last paragraph referring to the biggest equity options trade EVER!!!). I had read the same thing you did a few months ago about private placements but it was just a contributor to this thread that gave that opinion. Here is the complete story. Microsoft Puts Heat Up Competition Among Options Exchanges By Erin Arvedlund Staff Reporter 9/1/99 1:53 PM ET A massive options trade in Microsoft (MSFT:Nasdaq) Wednesday illustrated just how fiercely the nation's four exchanges are battling to channel orders to their floors. Volatility Index Today % Change 24.07 -4.64 Source: ILX Corporations like software giant Microsoft often institute options programs alongside share-buyback programs, and Microsoft's annual rollout of 2001-dated options into 2002-dated options hit the trading floors this morning like a river dam bursting. Selling puts is a way to lock in a specified purchase price for shares and is essentially a long position. Put/Call Ratio Today (Noon) Previous Close 1.12 0.52 Source: ILX Salomon Smith Barney and Morgan Stanley Dean Witter, acting on behalf of Microsoft, were said to be shopping around the company's orders to sell puts on trading floors around the country earlier this week, and Chicago emerged the winner of at least one iceberg-sized order. What made the trade so interesting, according to some traders, was that Susquehanna, the CBOE's newly appointed market maker for Microsoft, may have lost money on the trade to get the orders to Chicago amid a battle for business among the nation's four options exchanges. Early this morning, Microsoft stock was trading at just over 92. Then at about 10:33 a.m. EDT, Susquehanna traded about 54,000 Microsoft 2002 January 70 puts at a price that clocked in at 6 1/8 ($612.50) per contract, down 1/8 ($12.50). That the order flow went to the Chicago floor was a triumph in itself as the CBOE tries to capture Microsoft traffic from the Pacific Exchange, where the company's options traded exclusively, for the most part, until last week. At the same time, about the same number of 2001 January 62 1/2 puts were sold at 2 13/16 ($281.25) down 3/16 ($18.75). Open interest totaled a staggering 142,500 contracts in that strike, indicating another roll could be in the works. A few minutes later in San Francisco, the Pacific Exchange also crossed a 13,000-contract block of Microsoft September 120 puts and January 90 puts as part of a separate "reverse conversion" trade. "The company pretty regularly sells puts to the Street as a means of keeping up with their stated company share buyback," said the head of one institutional options desk. "What happens is obviously the prices trade a little better; the spreads are wider" with such big volume, he added. The other possibility, always a source of chatter on the floors, is that Susquehanna wanted the business badly enough that it was willing to offer what a rival Philadelphia market maker said was "not a good price." The Chicago traders bid the 2002 January 70 puts at 6 1/8, about 1/4 above the Pacific's bid. Brian McAllister, Microsoft specialist with the market-maker firm Binary Partners in Philadelphia, said his firm also has a position representing a "large chunk" of the open interest in the Microsoft 2001 January puts. Microsoft wants to collect some premium as part of its buyback program by selling puts, he added. "And this is how they do it. And you know what? It's a good time to be a customer. This was a terrible trade" for Susquehanna. "We're all just trying to break even," McAllister said. "And you have to be competitive in the first few days." Short of the company 'fessing up, there's no way to know whether Susquehanna lost money on the trade to attract business to the CBOE, but in the early days of any competitive listings, floor traders value market share over gains. The market makers are being forced to offer juicy prices to their customers in order to attract orders -- so juicy that in the words of one former Microsoft options trader on the Pacific Exchange, "the firms that can afford to lose money for the next six months are going to come out the winners. The others? Gone." A source at Susquehanna said the firm was only too happy to jump on this grenade. "We were very excited to be on the other side of this trade, since a few years ago, this would have never been done on the trading floor," he said. He declined to comment on whether the firm had eaten a loss on the trade, but speculated that the Microsoft trade might have been the biggest equity options trade ever crossed on a floor.