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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (147703)	11/19/1999 12:57:00 PM
From: GVTucker	Read Replies (2) \| Respond to of 176387

TP, RE: Does anyone know how brokerage houses will act upon options that end the regular day on one side of the strike price and go to another part of the strike in after hours trading? Unlike every other conspiracy theory put forth on this thread regarding stock manipulation, you've hit on a key area of stock manipulation here. A stock option doesn't officially expire until the Saturday following the third Friday of the month. That means that there used to be a small window after all the exchanges closed on Friday afternoon where an option that is seemingly out of the money might nevertheless actually be exercised. Example: Let's say I own Peoplesoft Nov 25 calls. Let's say the stock closes today at 22. After the close, IBM announces a takeover bid of $30/share for Peoplesoft. At 5:00 PM EST, I exercise the Peoplesoft calls. The seller of the Peoplesoft calls doesn't find out until Monday morning that he is short Peoplesoft stock. Now this really wasn't a major problem as far as manipulation goes, because neither the options nor the stock traded after the markets closed. Thus, although you could certainly get screwed, as my above scenario shows, you wouldn't get screwed because of manipulation. Nowadays, there is a disconnect between the options and the stock markets. The stock trades long after the option has stopped trading. What makes matters worse, the stock trading is highly illiquid, making volatility worse in this after hours trading. Prices are very vulnerable to, how shall I say, 'artificial' movements. The incentive for someone long an slightly out of the money option to try and move a stock a little after hours is great, it wouldn't take much capital to facilitate such a move, and the rewards could be pretty good. My advice to individual investors is twofold. First, don't trade after hours, unless you think that you've got excellent information and market sources. Second, if you're short a slightly out of the money call at expiration, go ahead and buy the call back for $1. The cost is minimal, and could save you from a major headache come Monday morning.