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At 02:34 PM 6/19/00 -0500, The DOCTOR wrote: "that 70 percent of option
volume is the hedging of customer activities". Case in point:
Some time ago I bought 10 call contracts. I was the only one in mankind
history who trade that option. I hit the bid that was outdated by a century
and receive almost a full dollar gift as to compare with the price I should
get (the stock was moving up but the bid and ask was not updated as nobody
traded that option). The strike price for the call was 12.5.
To hedge my calls the dealer bought 15 calls at the strike price of 17.5,
to hedge those he bought 20 calls at 20, and, in tern, to hedge those he
bought 43 calls at 35. The latest calls are unhedged but the chance for the
stock to go above 35 before the option expiration are as big as the chance
to rain with elephants falling from the sky.
So one obscured dude bought 10 contracts and created total volume of 88
contracts. When the trades were executed? In the morning when that dude
waked up.
Go and analyze that activity!
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