Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (64157)	6/1/2003 3:55:22 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Well, as we have seen, just because you have an opinion doesn't mean it's correct. As far as Explain to me why options are not offered for new issues. There has to be a reason, can't be for lack of interest. Yes, there is a very good reason. Several. First, the underwriters of a new public issue demand control of the equity of the corporation during a "lockup" period following the initial public offering. Second, in the period following an IPO the shares tend to be illiquid. The majority of shares are bought and held and the majority of the trading shares are actually market-makers making the market. So a very small fraction of the shares have a great impact on stock price. If you were to write options into such a scenario, you run the risk of the market-maker being counter-party to your position. Or in other words, set up to be screwed. Same reason some brokers don't let you short stocks just off of IPO. Or why new issues are not immediately marginable in some accounts. The idea is to create a period in which a market price can be determined without the destabilizing influence of leveraged transactions. Nothing to do with whether or not you can estimate a reasonable value for a stock option. If you can price a stock, you can estimate its volatility. So clearly when a stock is being priced, inability to estimate volatility is NOT a barrier to issuing or estimating the value of options. John