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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: Melissa McAuliffe who wrote (1825)	8/20/1998 1:08:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 4509

Good morning Melissa, I agree with your point about the nature of the options, but beyond that, let's ask the more fundamental question: How is it possible? Remember, we're not talking about one or two market makers dealing with a thinly traded stock. And we're not talking about a very short-term dip engineered to pick up a few thousand shares in stop losses. So this raises the question about investors expectations. Assuming that the market makers were somehow actively depressing the price of the stock, and assuming the analysis is correct, then there are other people who are equally clever in figuring these machinations out. Like fund managers who would be buying by the truckload! Now I only know of one way to lower the price of a stock -- sell lots and lots of shares. Now the market makers would have to be shorting like mad to accomplish this goal, and the shorts will have to be covered as the option positions are unwound. What I don't see is how they will make money on this deal. Presumably they will make money on the expiration of worthless calls and the exercise of in the money puts, but they will lose money on covering the short sale. What I would dearly like to see is for someone to demonstrate to me how this can work in a competitive (non-collusive) manner, and failing that, show me how it can be pulled off collusively given the very large number of market makers. I just have trouble buying into this conspiracy theory that always seems to be hatched when one of our favorite stocks is hammered. TTFN, CTC

To: Melissa McAuliffe who wrote (1825)	8/20/1998 3:12:00 PM
From: LLCoolG	Respond to of 4509

Melissa, To determine the potential effect of options, determining the Max Pain/Gain point, as it is sometimes termed, takes sophisticated computer modelling. But basically, the equation sets the puts and calls on opposite sides of the equation (and other derivatives that expire in a month), and set it equal to zero based on the strike prices and volumes. In this way, houses, or other institutions which have large options holdings, can effectively maximize their profits. That is why you will see hard resistance in stocks at a particular level, especially for a month period or two, when options are very active. I believe that is why PSFT keeps hitting 35, and why it ran down to 35 in a hurry from 40. Obviously, enough people and houses want this stock below 35 such that they substantially benefit from their options holdings, as opposed PSFT being above 35. But no one is ever right. This is just an example as to how this is not a pure capitalist market, and that while we, as individual investors, can be intelligent, luck and timing also plays a part, and probably more than we would like to admit or imagine. I am just gritting my teeth and waiting. Regards, G