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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Wren who wrote (7778)	9/7/1998 3:38:00 PM
From: Joseph G.	Read Replies (1) \| Respond to of 42834

two comments: (i) for stock purchased on margin, there is no requirement to deposit more cash, just a choice to do so, but at some point your broker sells the stock. <<but you will not have to put up new money as you would have to do with a heavily margined stock.>> (ii) what happens, dealers and market makers who sell calls and/or futures hedge by buying actual stock - otherwise they get broke very fast. In effect, they borrow money to buy stock at call rate (6%), and sell premium, which is typically at least 10- 15%. But, if the stock falls below the strike price, they sell the stock, as the call will expire worthless. The opposite is for puts, that is, if puts get "in the money", the dealer sells the stock short (or from his inventory) to hedge for the puts sold. This is a simplified process, there are usually more steps involved, but this if the final result: as a stock moves down, option dealers sell it to hedge, or to unhedge.