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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: jjeannie who wrote (4651)	11/10/2001 7:44:10 PM
From: mishedlo	Read Replies (1) \| Respond to of 99280

Best example is GE, a heavily optioned stock. I do not remember the timeframe but sometime last summer there was a collapse made bigger by delta hedging. Tremendous number of puts at a certain strike price. Stock broke below that and stayed there for a bit, near expiry. That is not something the "option boys" like at all. Losing huge dollars by not being hedged. So what do they do. To protect their ass, they short huge amounts of GE causing it to plunge further. Delta hedging has sent MSFT soaring several times. If breaks above their hedge point, so they start buying the crap out of it. These things are impossible to predict and although CIEN is nowhere near as heavily optioned as GE or CSCO or INTC, CIEN does have a fairly large number of options, enough to make me think such a course is very possible. Do not attempt to make any rational max pain decisions on low float low optioned crapola like MUSE for example. When key "option" support breaks on a major stock, you better believe the big boys are short or long depending upon the break. The option boys prefer to have a stock close right at pain cause they collect the call premiums as well as the put premiums. On a break, you better believe they will be hedged long or short to cover their asses. I never thought about this before but perhaps this is one reason these bear rallies always last at least a month. To protect their asses against all the call buying and stock buying the option pits buy more and more stuff, adding fuel to the fire. When the call buying/stock buying stops (or put buying on the bottom), they unwind their positions. This summer that unwind process took quite some time and until they finished and shorted enough to make themselves fully loaded on the short side, we stayed up. They sold just enough to make sure that no highs were breached. We may be undergoing such a distribution process right now. Look at EMLX for example. Keeps rallying to the same spot and then dies right there. If this is distribution, someone is accumulating big short positions at the "top". Once they have enough, the bottom will fall out on the bid. Of course one can make a case that EMLX is consolodating at this level and more buyers are coming in. That is my take at any rate and I hope this makes some sense. I went beyond your question, but hopefully this puts some of this stuff into perspective (for both of us). M