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To: GVTucker who wrote (79200)	4/15/1999 8:30:00 AM
From: Alias Shrugged	Read Replies (2) \| Respond to of 186894

GVTucker: >>>Thus, when someone comes in to buy a call, a market maker will sell that call to the customer and simultaneously try to also buy a put and short the stock. >>> I think you mean buy, not short, the stock. He creates a synthetic call (for himself as a hedge) by being long puts and stock. Otherwise, I agree with your post. So, when the stock is tanking, reducing the value of outstanding calls, the market maker is dumping stock also because he doesn't need as much stock to hedge his position.

To: GVTucker who wrote (79200)	4/15/1999 4:41:00 PM
From: Amy J	Read Replies (2) \| Respond to of 186894

GVTucker, Thanks a lot for taking the time to write this. Couple of questions: - is the analysis the same for both cases? (i.e. is the net effect the same regardless of whether it's hedging or manipulation?) i.e. is there only one mathematical analysis? - what do you mean by max pain point? - does "buy" get exchanged with "short" everywhere? - how do MMs make money off the spreads if hedging is adding to their costs (I got confused on this part, i.e. under what typical scenario will hedge costs be less than gains in spreads...and how would a MM foresee this, i.e. what factors?) - why are they trying to maintain a hedge position around option expiry time (or were you saying they maintain a hedge position all the time? If yes, does a MM need to report total % of fund which is hedged because of the cost of hedging? How do you know when a MM is hedging or not? - if hedging is very good, why don't more people do it? why wouldn't we do it? what decision criteria is used for determining whether or not hedging is a good idea under what circumstances? e.g. is it dependent upon size of portfolio, risk/reward preference, etc.? - what did Ibexx mean by a pressure point between 55 and 65? Is that the point where the # of puts and # of calls begin to merge to a particular strike price? how does this differ from your analysis, or doesn't it? Thanks, Amy J