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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: David Lawrence who wrote (14167)	3/1/1998 9:46:00 PM
From: Jon Tara	Read Replies (1) \| Respond to of 45548

Your theory is faulty: "No theory, Joe. I would observe that someone wrote those contracts, and they would certainly be looking for the shares to close at or below $40 at April expiration." There are many, many stratigies for writing contracts. Writing naked calls and then waiting for them to expire worthless is one of the more simplistic. It also is one of the more profitable, over the long-run, but I digress. It's NOT a very safe strategy on a per-trade basis, though, and not something that is wise to do in size. There are other strategies, though, that permit one to sell large quantities of call options while taking a small profit with minimal or no risk. For example, based on Friday's closing bids and offers, and assuming all sales at the bid and purchases at the offer, there was a profitable conversion arbitrage possible in the April 40 COMS options. In fact, it probably was QUITE profitable, because the call options most likely could have been sold at the offer, rather than the bid. In fact, my assumption is that this is how a good number of those calls have been sold. I won't go into the details of how and why this works. If you want to see, see Larry McMillan's "Options as a Strategic Investment". See the Arbitrage chapter under Conversions and Reversals.