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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: GVTucker who wrote (109286)	9/5/2000 11:25:05 AM
From: willcousa	Read Replies (3) \| Respond to of 186894

GV, as usual we don't agree. How off the mark must an analyst be before he falls into the class of those who post false material on the net?

To: GVTucker who wrote (109286)	9/6/2000 3:12:50 PM
From: David E. Taylor	Respond to of 186894

GVT: Just catching up here, so this is a kind of late thought on your exchange with Willcousa about the decline in INTC yesterday and today following the Kumar downgrade, and its relationship to INTC options. While I agree with you that there is almost certainly no direct link between the Kumar downgrade and options expiration, there is (IMO) almost certainly a cause and effect relationship: (1) There was/is a large open interest in the Sept/Oct calls at the $70/$72.5 strikes which built up during INTC's recent run from the low $60's to $75. Option contract writers typically hedge these positions by buying the stock as it runs up and the open interest in the calls builds up. (2) Now Kumar comes out with a kind of mild downgrade on its face, certainly not one to warrant a $10 sell off. INTC buyers dry up temporarily as they smell the opportunity to pick up INTC a little cheaper. (3) Option contract writers seize the opportunity to sell a big chunk of their stock position at nice profit. Their selling starts INTC down, and this keeps buyers out and panics weak hands into selling stock, thereby exacerbating the decline in the stock price. In the kind of volatile scared-cat market that we have, it's relatively easy for some initial minor selling on the news to snowball into a major sell off. (4) Many call option holders get shaken out, but the cost to the option contract writers is greatly reduced - for example the value of the Sept 70's fell rapidly from 6 to 3/4, and the 72.5's from 4 to 1/2, not just because the underlying stock price declined, but also because a chunk of the time premium evaporated (or got yanked). (5) The value of all open interest Sept calls has declined dramatically. Check out: ez-pnf.com and you can see that there is a strong motivation to keep INTC under $75 near term, and that $70 is the INTC price point which requires minimum payout on Sept contracts by the holders. I used to blow this options expiration stuff off, but the more I track the total value of all open interest call/put contracts for the nearest expiration vs stock price movement, the more I realize that often there is in fact a chicken/egg effect going on, where some negative news or downgrade produces an out-of-proportion decline in the stock price. A couple of times I've immediately jumped on some puts at a strike nearest the then stock price and have made a tidy profit doing it. I've been tempted to do the same many times, and I wish I had less of a bullish outlook on the market generally and tech stocks in particular so I could convince myself to do this more often! Just some thoughts on this. Look for a rebound to the $70 level soon, could be some nice profits in the Sept 65/67.5 calls. David T.