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To: Rich Powers who wrote (8530)	5/7/1998 4:39:00 PM
From: Greg Jung	Respond to of 12559

When the stock passes above a strike the open interest in the option is held by people with 100% profits who want to cash out, especially when it is no longer rising. So they sell their calls back to the options guy, who can then short the stock while holding this call, if the stock moves up he can buy it with the call, etc. I don't know how he would hedge an out-of-money option, but you see how the options eventually translate into a mechanical trading activity so that in the absence of a share grab they can move the price. Some stocks acquire a lot of open interest in options, especially those that are "in play" in favored sectors. Sometimes the stock rise can overpower a huge open interest (such as for Lucent the last year) but when consolidation occurs the options become important in the stock price. Nobody is manipulating it, but that is a good model,perhaps, to figure which way a bias is. The MMs make money on the bid/ask spread and maybe a little premium decay - not naked shorting against the public. Greg