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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Jenne who wrote (50953)	4/16/1999 9:06:00 PM
From: Glenn D. Rudolph	Respond to of 164684

From Businessweek: "BIG MONEY. According to these sources, investors often pay too much when they buy an option and get too little when they sell. It means they put in ''limit orders''--orders specifying prices--based on incorrect information. If just one-tenth of options trades, now about 120 million a year, are skewed against the public by merely an eighth of a point, investors are hurt to the tune of $150 million a year. Here's how Amex options price-fixing is said to work: The specialist establishes the option's publicly quoted price. Specialists are traders who buy and sell options but with special responsibilities--and power. And that includes the power to establish the prices that appear on trading screens worldwide. Prices of both stocks and options are expressed by two numbers--a ''bid'' and an ''ask.'' The bid price is the price a member of the public can get when selling an option. The ask price, which is higher, is the price an investor will have to pay when buying the option. The difference between the bid and ask is the ''spread.'' At the same time the specialist establishes the official bid-ask prices of the option--the prices disseminated on trading screens--the options market makers establish their own price, often with narrower spreads. In the example described on this page, based on the recent pricing of a widely traded option, the trader was able to offer a spread of 4%--versus the 8% spread set by the specialist. Market-maker firms frequently can meet their expenses, and turn a handsome profit, while offering more modest spreads to traders on the floor. By offering better prices, they can draw business from professional investors who use floor brokers to negotiate better prices. Ordinary investors pay the prices set by the specialists--and not the better prices available from the market makers. That's because they don't know that better prices--narrower spreads--are available. The trading screens show the wider bid-ask spreads set by the specialists. Floor traders can insist that specialists display their better prices on the trading screens. But they don't. One reason is fear. As one trader points out, ''it is well known that specialists don't like it''--and can retaliate by excluding traders from getting a share of large trades that come in to the floor. But fear is not the only reason traders don't insist."