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To: AlienTech who wrote (58256)	12/9/1998 2:08:00 AM
From: Herschel Rubin	Read Replies (1) \| Respond to of 58727

Peter, Thanks for your response. That sounded reasonable, then AlienTech added fuel to the discussion. AlienTech: I used to get a kick out of reading your posts when I was in MCAF long ago (summer 1997) before the merger. Then I was not a member of SI, so you never heard from me. At any rate, nice to run into you and thanks for the response. You raise a key point that a specialist could get obliterated by a downdraft if the they hedge a large buy order for calls with an equivalent amount of stock. That could be disastrous. So what do they do? To fill the large call option order unhedged, they ALSO take the risk that the stock may run away to the upside and have to buy back the calls at 5X or 10X their initial value?? That's not a solution for them either. They must do some kind of hybrid hedge where they buy SOME stock and then buy some out-of-the-money puts for insurance (but then those puts have to be available for buying, otherwise they must create the puts, and so on..). Or they don't buy the underlying, but buy out-of-the-money calls. Any comments?

To: AlienTech who wrote (58256)	12/10/1998 1:14:00 AM
From: Peter Dierks	Read Replies (2) \| Respond to of 58727

They also have an ability to change positions quite quickly to take advantage of changes in the market. If you think that there are no risk taking market makers then you will believe that they always hedge their positions. What I described is the most common occurrence. If you you disbelieve look for the total absence of the effects I described. You espouse the cynical view that the market makers manipulate their markets for their own gain. What would the SEC, NYSE and NASD say about broker behaving in the manner you imply? Peter