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To: Biomaven who wrote (221798)12/30/2006 4:32:25 PM
From: MagratheaRead Replies (1) | Respond to of 275872
 
It is my thinking, too, that the other side of the Option
trade is in the Stock.

As for whether an options transaction could happen and it not show up in the volume...
I'd be surprised if it would not. But the Option volumes I've been tracking
for two months have been filled with incorrect data for options not traded.
Of the data I do have, large changes in open interest (>1000 contracts) are preceded
by large volumes the day before. Nov. 1 is an exception, but the volume two days
before was enough to account the open interest for the following two days.
So I could chalk that up do a delay in reporting open interest.

In the case of writing large Put positions after Oct 18 earnings, it has been
suggested that the writer(s) of the Jan 20 puts (not having a corresponding straddle option)
would then short the stock with a target under 20, using the puts to cover the position.
The writer pockets the $1.20-$1.70 for the option, and shorts from high 21's.

My problem with that scenario is someone had to pay the writers that $1.20-$1.70
to buy the option. Conjecture: this options transaction started with a phone call
or email to set up this big exchange. The buyer and seller are not unknown to each other.
You are the buyer of these Puts and you are going to buy them from a someone about the
short the stock. Why should you pay to play?

The only answer I can see is that you are counting on the shorting action to
increase the volatility of the stock and reduce the stock price and, therefore,
increase the value of the Puts.

 
I don't have the volume for Oct. 19.
Oct 19: Last 1.65            ~80000 Options opened  
Oct 20: Last:2.05  Vol 12481  (4500 options opened)
Oct 23: Last:1.85  Vol 22643      0 opened.
Oct 24: Last:1.65  Vol 17232    773 opened.
Oct 25: Last:1.45  Vol   233  
Oct 26: Last:1.15  Vol missing   12000 options closed on 25+26.
Oct 27: Last:1.45  vol 1011



Let's assume the Buyer of the 80000 puts on Oct. 19 turned around and sold them on Oct.20,23,24 (and with only 20000 open on the 18th, it is likely much of the volume came from said buyer.) The Buyer unloaded as much as 50000 of 80000 at some profit.

What if the Buyer and Writer were two arms of the same Inv Bank or Hedge Fund? The Buyer has made a small net loss, the Writer has made a killing.

Not without risk, but I can make the historical data fit the scenario.

It reminds me of the joke:
If you owe the bank $1,000,000, the bank owns you.
If you owe the bank $1,000,000,000, you own the bank.

There are non-linearities due to scale that must be considered.

-Magrathea 


           AMD |  AMDAD    .00                                |  AMDMD
   Date  Close |  Clast   CChg   Cvol  CopInt CChg1D COI_usdK |  Plast   Pchg   Pvol  POpInt PChg1D POI_usdK

 061228  20.57 |   1.25   -.10   4827   26694    -89    -11.1 |    .60   -.10   2368  111957    369     22.1
 061227  missing.
 061222  20.77 |   1.47   -.23   1984   26889    -57     -8.4 |    .66    .11   1328  111595   9138    603.1
 061221  20.95 |   1.70   -.60   2007   26946    416     70.7 |    .55    .15  12121  102457    110      6.1
 061220  21.85 |   2.30    .15    917   26530     61     14.0 |    .40   -.05    406  102347     -4      -.2
 061219  21.64 |   2.15   -.20   1405   26469    199     42.8 |    .45    .10   1584  102351    657     29.6
 061218  21.97 |   2.35   -.25    918   26270    596    140.1 |    .35   -.05   1379  101694 -19644   -687.5
 061215  22.12 |   2.60   -.60   2851   25674   2134    554.8 |    .40    .00   2097  121338  14835    593.4
 061214  22.71 |   3.20   1.85   9376   23540   2663    852.2 |    .40   -.70  54556  106503  -4072   -162.9
 061213  20.17 |   1.35   -.15   3793   20877   3486    470.6 |   1.10    .15  13524  110575    556     61.2
 061206  21.49 |   2.30    .10    940   16892      6      1.4 |    .75   -.10    115  109968     13      1.0
 061205  21.34 |   2.20    .10    637   16886    311     68.4 |    .85   -.10   1755  109955   -262    -22.3
 061204  21.04 |   2.10    .20   1849   16575    748    157.1 |    .95   -.20   2620  110217    716     68.0
 061201  20.69 |   1.90   -.60   2277   15827   -624   -118.6 |   1.15    .45   1558  109501    328     37.7
 061130  21.57 |   2.50    .10   1404   16451   2579    644.8 |    .70   -.10   6474  109173   6002    420.1
 061129  21.41 |   2.40   -.35   5063   13872    159     38.2 |    .80    .15   8498  103171  -3450   -276.0
 061128  21.93 |   2.75    .10   2149   13713     -6     -1.7 |    .65   -.05   4745  106621     92      6.0
 061127  21.83 |   2.65    .00    296   13719      3       .8 |    .70    .00    314  106529     -7      -.5
 061124  21.80 |   2.65    .05     92   13716    -59    -15.6 |    .70    .00    139  106536    180     12.6
 061122  21.77 |   2.60    .20    272   13775    210     54.6 |    .70   -.20    716  106356   4788    335.2
 061121  21.24 |   2.40   -.05    319   13565    184     44.2 |    .90    .05   5177  101568     95      8.6
 061120  21.44 |   2.45   -.05    394   13381    125     30.6 |    .85   -.05    256  101473    198     16.8
 061117  21.45 |   2.50   -.25    203   13256     21      5.3 |    .90    .00    360  101275   -394    -35.5
 061116  21.74 |   2.75   -.05    679   13177    -58    -16.0 |    .90    .00    170  101517   -152    -13.7
 061115  21.71 |   2.80    .35    657   13235     72     20.2 |    .90   -.10   3797  101669    194     17.5
 061114  21.34 |   2.45    .00    390   13163    -67    -16.4 |   1.00    .05    574  101475    473     47.3
 061113  21.20 |   2.45    .10    127   13230    179     43.9 |   1.00   -.15   1705  101002    128     12.8
 061110  21.07 |   2.35    .05    247   13051     35      8.2 |   1.15   -.10    428  100874   -241    -27.7
 061109  20.89 |   2.30   -.25    179   13016    180     41.4 |   1.25    .15    270  101115   2665    333.1
 061108  21.25 |   2.55   -.25    415   12836    -42    -10.7 |   1.10    .11   3315   98450    -70     -7.7
 061106  21.39 |   2.75    .30    330   12899    -43    -11.8 |   1.05   -.25    125   98470   -457    -48.0
 061103  20.88 |   2.45    .10    254   12942    254     62.2 |   1.30   -.06    479   98927  403.0     52.4
 061102  20.85 |   2.35   -.05    375   12688    142     33.4 |   1.36   -.04   1026   98524  268.0     36.4
 061101  20.73 |   2.40   -.30    106   12546    -54    -13.0 |   1.40    .15    418   98256 1277.0    178.8
 061031  21.27 |   2.70   -.10    182   12600    -82    -22.1 |   1.25    .00    601   96979 4491.0    561.4
 061030  21.32 |   2.80    .30    368   12682   -501   -140.3 |   1.25   -.20   6495   92488 -205.0    -25.6
 061027  20.86 |   2.50   -.40   1786   13183     75     18.8 |   1.45    .30   1011   92693  -67.0     -9.7
 061026  21.50 |   2.60    .25    559   12969  12621     90.5 |   1.45   -.20    233  104009  773.0    112.1
 061025  20.83 |   2.60    .25    559   12969              .0 |   1.45   -.20    233  104009     .0       .0
 061024  20.32 |   2.41    .11    759   12621              .0 |   1.65   -.20  17232  103236     .0       .0



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