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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: DOUG H who wrote (17565)	5/19/1999 7:33:00 AM
From: Richie	Read Replies (1) \| Respond to of 41369

DH, Equity options expire on the 3rd Friday of every month. I'm sure you have heard the term "triple witching Friday". That means that Equity Options, Index Options and Futures Contracts all expire on the same day. The significance is from the implied volatility around option expirations. Some believe that the closing price for a stock on option expiration is tied to the amount of open interest at a particular strike price. Let's say that AOL has 1MM open contracts (which is by far and away the most open interest) for the MAY 130 CALLS. Then it stands to reason that the people who wrote the calls (collected the money for the premium, MMs or Market Specialist) has a lot of money riding on the stock closing at 130, which makes the CALLS he wrote worthless. It's very complex, but it also works on the PUT side. Anyhow, most people believe that the BIG MONEY can move the stock to the strike price with the most open interest to make those options expire worthless. The option has to be "in the money", over the CALL strike price or under the PUT strike price for the purchaser to make any money at all! RichieH