To: diana g who wrote (15518 ) 3/19/1998 5:38:00 PM From: wggm Respond to
Neither FLC's strength or ESV's weakness is related to options expiration. When options market makers sell or buy options, they hedge against price movements by either buying or selling some stock (for example, if I sell call options which are at the money, I buy stock to protect myself in case the stock moves up (if the option is at the money, the chances of it expiring in the money and me being short stock are about 50/50, so I buy about 50 shares of stock for each option I sold). As the stock moves above the call's strike price, I would buy more stock because it becomes more likely that the option will expire in the money. At some point I conclude that the call I sold will definitely expire in the money and buy 100 shares of stock for each option I sold. The time when options expiration might effect the stocks price is when the stock is close to a strike price and the option market makers don't know whether they have to buy or sell stock. If the market makers have sold options, the stock will tend to make a sharp move away from the strike price at expiration. If the market makers have bought a lot of options, the price will tend to gravitate toward the strike price (eg. If I own the FLC March 25 calls and the stock starts to move above 25, I will sell stock against the stock I will receive when I exercise my calls, thereby pushing the stock back toward 25). In the case of FLC, the stock is not near a strike, so this phenomenon wouldn't apply. ESV is close to a strike price, but there aren't many March 27 1/2 options outstanding, so to the extent that this phenomenon did apply, it would have a very weak effect. I don't follow ESV, but I think FLC was just playing catchup (also, I sold a lot of my FLC about 4 points lower, so I think Karma played a part).
