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.

Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (8987)	11/22/1997 4:58:00 PM
From: Rational	Read Replies (2) \| Respond to of 18056

Joe: Options contracts will, in general, be honored by the OCC. Dealers maintain margins with the OCC. Given the circuit breakers, OCC can make margin calls on dealers and close accounts of defaulting dealers. The OCC also collects fees (insurance premium) as a protection against occasional defaults by dealers. I know the modus operandi of the clearing mechanism very well. In short, there is very little cost of a systemic risk on OCC and options contracts will be honored, as you have mentioned. But, one cannot rule out counter party risks in forward contracts which are huge; there are no clearing houses for these contracts. In any case, my main point is that when dealers begin to lose as prices fall more than a little, their automatic program selling for Gamma hedging will trigger a collapse in the stock prices. Thus, have your cash ready to buy your favorite stocks. <G> Sankar