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Only two things can occur with options. The expire worthless or they are closed
out and exercised. If a fund wanted to protect a position in CSCO and had
bought the CSCO March puts they can either close them out or exercise them. If
they close them out someone has to be a buyer. Right now there is an open
interest of 67,409 puts at strike prices of 25 and higher. Another 36,000 are
at the 20 and 22.5 strike price. If exercised, that is at least 6 million
shares that will come to market on Monday. Options are a zero sum game, but the
shorts in the puts either have to buy back there short positions or take stock
when the puts are exercised. If the puts are sold then the buyer is either
closing out an open position or will buy stock to hedge that position. In that
case the buyer will exercise the puts he purchased to get rid of the stock.
There would no effect if all the put options holders sold there puts to those
that were short, but that doesn't happen. So until Friday you have the
possibility for support of the stock if puts are sold and the buyers hedge buy
purchasing stock and you have the possibility of a break in the stock if the all
that stock comes to market at the same time. You will not get one extreme or
the other, but something in between will evolve.
Don Thompson wrote:
> Ira,
>
> So if these people are the insitutions, then the potential exists for a fair
> amount movement.. The third situation is, if they do nothing into
> expiration, but that is stupid if they are sitting on a fair amount of
> value.
>
> But if they decide to exercise: Why is this dumping stock on to the market?
> I just have a hard time getting the role of the
> market maker and the market they service.
>
> The good Doctor says about 80% of the option business is just fluff or some
> kind of offsetting, because he says, or I interpret that the
> PC ratios published by the CBOE are just a couple of grain of salt.
>
> So why is this going to be a big deal?
>
> Ira wrote:
> > right now the most important thing is whether the holders of deep puts
> decide
> > to exercise and dump more stock on the markets or if they decide to sell
> the
> > puts and force the buyers to purchase stock.
> >
>
>
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>
>
>
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