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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: holland who wrote (28784)	11/18/1997 11:58:00 PM
From: Heg Heg	Respond to of 58727

Holland, FORM2 is based on the assumption that options are mainly written by Arb's, who then purchase or sell short the underlying stock effectively covering the options written. At expiration of course the previous stock transaction would be reversed (or if exercised, the stock delivered or the short covered). In this scenario Calls and Puts are offsetting each other and FORM2 tries to calculate at which point the minimum amount of shares is to be moved. Unfortunately I know little about how Arb's work and that little has been picked up from other posts. I would really appreciate more info about this. In particular I have just recently read that Arbs may really use delta-neutral strategies, which would mean that they periodically adjust the number of shares/shorts when the price changes and also that the number of shares to options is not normally 1-1. Therefore this FORM2 may really require at bit more work/refinement. For statistical evaluation one needs a lot of data which takes time to collect. From my observations so far I can only say that in very bullish times there appears to be no significant effect and the gaps between actual and 'optimal' prices can be very large. Keep in mind that this project is about finding out IF the expiration of options has a systematic effect on the underlying stock price. Regards, Heg