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Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: RoseCampion who wrote (1915)	1/18/2001 8:53:59 PM
From: KFE	Read Replies (2) \| Respond to of 2317

Rose, You said it was clear to you that this activity wasn't part of a hedge...how did you know this? Several factors all put together allowed an educated guess. The type of stock - not one to normally see large arb or hedge play. Time & Sales on options and stock- no corresponding offsets. Action in stock the preceding three days. Experience wouldn't lots of option activity also result in the market maker buying/selling stock for his own account (to keep him delta neutral) and wouldn't this tend to cause the stock volume to rise at the same time the options volume did? Yes. Market makers will try to hedge with other options first and then the underlying. In this case there was no significant activity in the other options so you would expect the market makers to hedge in the underlying and you have to anticipate this. The amount of contracts involved (over 44,000)would make it impossible to completely hedge this position in the underlying immediately (about 4 million shares-there wasn't much time value). The stock volume for the day only totaled a little over one million. The biggest fear market makers or specialists have is a takeover. It is one of the few times they can take a huge hit. After I had already done the trade Schaeffer's free site mentioned the unusual volume and said that the blocks went off between the bid and asked. This worried me because I thought that it could possibly be an arranged/crossed trade but the next morning the media said the trades were under investigation. Regards, Ken