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Technology Stocks : INVX Innovex Comdex Winner !! -- Ignore unavailable to you. Want to Upgrade?

To: Randy Tidd who wrote (2487)	5/22/1998 1:38:00 AM
From: Mark Oliver	Read Replies (1) \| Respond to of 3029

The whole concept of puts and calls are a book full. To put it simply, if you sell a put, you are happy to buy the stock at a fixed price. If you sell a call, you are happy to sell at a fixed price. In both cases, you get paid cash on the spot for taking the risk of having to fulfill the contract. That's the reward. Then, you have to choose the strike price. In this case, someone sold puts at a strike of $20. If June 19th, the price of Innovex is under 20, they will buy stock. Since they were paid when they sold the put, they actually buy the stock for $20 minus the premium. If they were paid 7/8, then they will realize 19 1/8 as their purchase price. If they had sold 22 1/2 puts, they might have gotten $2 which is more, but they end up paying 20 1/2 if they are put the stock. So, a 20 put is less risk of being filled. This logic is for selling. <I heard this attributed to Intel and perhaps to Dell. How is this accomplished? Say a company writes puts. If the stock does well, they keep the premium income. If the stock does poorly, they need to cover the options, possibly by selling their own stock on the open market to raise the cash. How can they use puts to buy back shares?> No. A company through a vote of the board decides to buy back shares. They can either go straight to the market and buy, or they can sell a put contract. When a company buys back shares, it can take years to complete. They buy back on dips, or in the case of some they sell puts. They know they want to buy. They feel more sure of the value of their stock than private investors. So, they confidently sell puts and hope to buy the stock. If not, they keep the premium and then sell a put again. > On the other hand, it also means that someone has inside information > that the stock is in trouble and they expect it to go down. I said this because people believe that options are the most common source of inside trading. It costs too much to buy stock and shorting is risky. It's now silly to say more. The point of my previous post was simply to say a large volume of puts can mean anything. It's probably not a good sign, but you never know. Their is both a bul and bear scenario depending on which side of the trade you are on. Because the volume was all concentrated in one strike in one month, it's not as clear as if the contracts were spread around more. If you want to know more about options, get a couple of books. It's a story that goes on and on. Regards, Mark