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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Ian@SI who wrote (33800)	1/14/2000 11:12:00 PM
From: Guy Gordon	Read Replies (2) \| Respond to of 70976

No, I don't think so. First, options are almost never converted to stock before the strike date. The reason is that such a conversion would throw away the time value of the option. Instead, you would simply sell the option and buy the stock. Second, your question brings up a point on which I'm ignorant and need to do more research. You are thinking of options like they were a short sale. In a short sale my broker has to actually find some shares in a margin account and borrow them. If the owner sells (or moves them to the cash side), then I have to cover. But I don't think options work that way. There isn't a one-to-one relationship between certain shares and certain options contracts. For example, I could write un-covered calls. The options are written (created) by the Market Maker. Your concern about illiquidity is also a good one. The spreads on most options are usurious. And the MM can easily move the price if you try to buy or sell too many. Many people form conspiracy theories about the evil Market Makers manipulating their stocks. It just doesn't happen on stocks of any reasonable size (i.e. non-penny stocks). But they sure as hell do manipulate the options prices. Badly, and to our detriment.