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To: John Graybill who wrote (42266)	1/15/1999 2:46:00 PM
From: Robert	Read Replies (1) \| Respond to of 53903

Maybe I am just dense, but how does big activity in the Feb 65 CALLS indicate that traders are picking the top? Do you mean to say Feb 65 PUTS? TIA -- Robert

To: John Graybill who wrote (42266)	1/16/1999 4:19:00 PM
From: Carl R.	Respond to of 53903

The pushing of a stock to a strike price is a natural and expected result of the arbitrage that professional option writers do to cover their position. The higher the volume of options relative to the volume of the stock, the greater the effect, and a lot of options trade on MU. Note that if the stock is above the highest options, there is no effect, but otherwise the process serves to push the stock towards the strike price which makes the most options worthless. Why? The short version is that when an option writer writes a call, he buys stock. As you get close to expiration, calls in the money tend to get cashed in, so option writers sell the stock that they were using to hedge it, moving the stock down. When someone cashes in a put in the money, the option writer buys stock to keep his position neutral, driving the price up. Thus if there are more calls in the money than puts in the money, the effect drops the stock price, and the effect continues until a balance is reached. If the stock price is between strike prices, there are more options in the money than at either strike price, so the price will move one way or the other. Note that this not a sinister plot. It is the natural functioning of the market. Carl