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To: Chuzzlewit who wrote (72835)	10/18/1998 6:52:00 PM
From: FR1	Respond to of 176387

suppose a market maker sold puts for $3 and and an equal number of calls for $3 for a strike price of $55 when the price of the stock was $55. IMO - I doubt if anybody would do this. If you are going to sell a call and you sell it for the current price of the stock you have no intention of keeping the stock. If the stock closed even $1 above the current price it would be called out and you would lose your ownership of the stock. I think the most common thing to happen in the above situation is the following: 1) You own a lot of stock and it is at $55 2) You sell calls 1 or 2 strike points out - $65 would be a likely sell. 3) You then need to hope that the stock does not get over $65 by expiration date. If it does, your stock will get called out. You would gain $10/share but you would lose ownership and you would face capital gains. 4) As expiration date closes in and the stock price approaches $65 you need to either buy back your calls (at a loss) or, if you control a lot of stock, you can sell a ton of stock to depress the price and save your covered calls from being called out. It is harder today for MMs to do this because there are so many individual buyers in the game. However, if you look at the outstanding calls at $65 and you see a enormous amount out there, you know the people that wrote those calls have a lot to lose and are going to fight to keep the price below $65. Exciting to watch. If you are super conservative you might have bought some cheap puts to save your downside at the same time you wrote covered calls.

To: Chuzzlewit who wrote (72835)	10/18/1998 6:58:00 PM
From: Eddie Kim	Read Replies (1) \| Respond to of 176387

Let's say the MM wants the stock to go up: MM SELLS puts and BUYS Calls. They don't buy both or sell both. Thus, the MM wins with both option positions if the stock goes up. Second, since 95% of all options expire worthless and the large firms are writing most of them they make money every month. Let say a large firm has sold a lot of DELL 65s. Under normal conditions it is to their advantage to keep the stock below $65. I don't know the exact dynamics of this operation, but I'm sure the firms know how they can make the most money...either keeping it under $65 or letting it rise above. Third, MMs or whoever are not always successful at this game. I have seen many times when DELL has busted through option prices and left option writers holding the short end of the stick. However, on days when DELL or whatever stock really isn't moving due to fundamental news, I believe MMs or whoever can nudge the stock a certain way. Finally, take a look at the closing prices of DELL and CPQ on option expiration. One will see, consistently, that both of these stocks normally closes below some option strike price with LARGE open interest. Coincidence? Coincidence doesn't exist on WALL STREET. That's all I know and I can't give you some specific examples. Maybe someone else can. I am quite certain that what we've been discussing does occur. My friend seemed to apply that it was a no brainer that it happens all the time. In fact he said it wasn't rocket science.