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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Herm who wrote (7763)	6/25/1998 10:05:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Everybody, Buying and selling CCs can be annoying at times. Especially, when you place a limit buy or sell order and it is filled. But, an hour later the bid/ask moves up or down by 1/8 and you feel like your got ripped off. 1/8 of a point in options means a whopping $12.50 per contract and can add up real fast you trade in 10 contract lots. So, let me shed some light on bid/ask spreads and how you can learn to gauge the direction of the price better. What is the difference between a bid and an ask? Is this the same as the closing price? A bid is the quoted price at which a Market Maker is willing to buy a stock. An individual desiring to sell a stock would be selling at the best current bid price. An ask is the quoted price at which a Market Maker is willing to sell (or "offer") a stock. An individual desiring to buy a stock would be buying at the best current ask price. Therefore, customers are selling to the bid and buying from the ask (or "offer"). The best ("inside") bid is the highest quoted bid of all competing Market Makers to buy a particular stock at any given time. The best ("inside") ask is the lowest quoted ask of all competing Market Makers to sell a particular stock at any given time. The "closing" price, as printed in most newspapers, is the price of the last trade of the day. The closing price can reflect either the bid (if the last trade was a customer selling the stock), the ask (if the last trade was a customer buying the stock), or a negotiated price between the bid and ask. Since the new SEC Order Handling Rules were initiated on January 20, 1997, a customer's limit order can affect the inside bid and ask on the phased-in stocks. To find out more about the rules, visit the Nasdaq site, and to see statistical analysis of how the rules are working, visit our Market Quality Monitoring section. Nasdaq Market Makers are the NASD member firms that use their own capital, research, retail and/or systems resources to represent a stock and compete with each other to buy and sell the stocks they represent. There are over 500 member firms that act as Nasdaq Market Makers. One of the major differences between The Nasdaq Stock Market and other major markets in the U.S. is Nasdaq's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a specified number of shares. One place investors can watch (on a delayed basis) the price movements for all stocks is at quote.com during market hours. It is a real learning experience which will give you a better feel for the process. You can chart the price swings and watch as block of stock are dumped to short the stock. You can see the uptick setup before the shorts move in. By watching this interaction you will learn how to not get caught in the MMs suckers bid/ask game. You should never be chasing after a price. Rather, you should be confident and let the price come to you! On low volume days and/or certain times of the day, you would be surprise what MMs will do to pick up your small 100 share bids while 1000 - 5000 share bids are all around you. PS - You can even enter the option symbols and watch the bids/ask order placed. Open two windows and watch the stock vs the option for that stock. You will learn more about bid/ask than reading a book!