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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Cents who wrote (726)	2/20/1998 8:01:00 PM
From: Madpinto	Respond to of 2241

Option expirations tend to have more volatility because traders must close out positions or watch them expire. Also, due to the lack of time, the options have a great deal of leverage. As far as the put/call ratio goes, I don't believe it has much importance any more. Public orders in the past were predominantly buyers. The theory's proponents claimed the public tended to have the wrong position on. If more calls traded than puts (I'm oversimplifying now) then the theorist became more bearish and vice versa. Here's a question somebody asked me on another thread along with my answer. Do you believe that mm's or specialists work with the option mm's or specialists to hold back stocks near option exp? I have never heard of anyone conspiring with the stock specialist or mm's to pin the stock. The reason we see the stock pinned so often does have something to do with options though. As options get close to expiring, the holders of those options typically try to sell them even if the option is in the money. Most option buyers do not want to take delivery on the stock. In most cases, the public owns the expiring options. As they sell these options, the mm's hedge their position with stock. For instance, lets say a stock is trading at 56 with an hour to go before Jan expiration. Holders of the Jan 55 call may try to sell out of their positions rather than take delivery of the stock. The mm's will buy the calls and sell stock knocking it down towards 55. When the stock gets to 55, the calls usually get offered at 1/16 with no bid. MM's offer stock at 55 1/8 because they can buy the calls at 1/16. Conversely, they bid for stock at 54 7/8 if the Jan 55 puts get offered at 1/16 or just to buy back the stock at a better price so they do not have to exercise the 55 calls. In this way the stock gets pinned at 55.