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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe -- Ignore unavailable to you. Want to Upgrade?

To: Dan Duchardt who wrote (41)	8/14/2001 11:19:58 PM
From: RGM	Respond to of 1064

Sorry about my fuzzy thinking and explanation re "boxing a stock in" once it trades outside the - + 75 cent boundary of the nearest options strike price. Today was a busy day for me watching the AOL "falling knife" stock price while accumulating a naked put position on mostly AOL Jan 2002 $30 puts and a few AOL Jan 2002 $27.50 puts. Even at these low strike prices, I think AOL is still overpriced relative to its earnings, so I may protect half of my Jan naked put position by buying Oct $32.50 puts when AOL bounces up a couple of points. Against a background of low volume this week, the market maker manipulation games are ever so obvious as the use their buying and selling power to position stock prices into the respective price range towards maximizing having as many option contracts expire worthless this Friday. I decided not to have any "absolute actions" to apply once a stock price is "in the money" on my naked put position. It all depends on my "comfort level" about the stock. For example, if AMD is in the money of my $15 naked put by trading in the $14.25 - $15.00 and then closes below $14.25 whereby I end up with the underlying shares. With this company, I would take no action even if the stock price subsequently went below my breakeven price of $11.32 on those $15 naked put writes. With AMD, I would simply do nothing and wait to see if my $12.50 and $10 naked puts get exercised. However, with a stock I do not have the same comfort feeling for as I do with AMD cause I do not know what the bottom price may end up being for that stock. A good example of such a stock was what I had to decide to do today with INET as I had a naked put position on the Aug 12.50 puts. This morning, INET went quickly went below 13 and was trading in the 12.75 area. I knew the market makers wanted to move it into the 12 area so that those option contracts would expire worthless this Friday. Since INET just went public this spring, I only had a few months of price history to see if it closed within the 75 cent boundary of its strike price on 3 options expiration Fridays. It misbehaved one of three options expirations. In other words, one time investors benefited cause the closing price on that options expiration day was outside the - + 75 cent boundary of the nearest options strike price and two times the options contracts expire worthless cause it closed within the 75 cent boundary. This stock appeared to lack buyers plus we had 3 trading days till this month's options expiration and I only received a 50 cent premium on this position, I wanted to make a decision to enter a 12.50 limited short order for the same number of stocks that would be put to me, or to buy puts to eliminate my naked put position. Since my cost to buy the 12.50 puts would be 30 cents and I sold these puts at 50 cents, I decide to offset my position rather than entering a 12.50 short and then having to keep an eye on INET's stock price. I am so glad to be using Interactive Brokers as their low commission cost resulted in this transaction being profitable. My brother uses Schwab and he pays a $30 minimum for an options order. Regards, Rob