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Titanium Metals Corporation Message Board

  • tmite55 tmite55 Jan 21, 2006 10:31 AM Flag

    Options

    Someone please correct me if I'm wrong, but I see options as strictly a side-bet on what a stock is going to do. They're zero-sum -- the looser pays the winner. I can't see why MMs (or anyone else for that matter) would care at what level and at what dollar amounts people are placing these side bets. As long as there's a market and a spread, they're happy. I think it would be very rare circumstances that would drive a MM to want to hold an inventory of options. So I don't see them trying to drive a stock to close at a max pain point with respect to the options.

    Nevertheless, there does seem to be some some convergence at strike points as expiration approaches. But I think it's purely psychological.

    I prefer to just buy a good stock and hold -- it's a nonzero-sum model. We can all make money.

    Tmite

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    • This makes sense.

    • Some holders of the Jan $70 call options were called out even though the stock closed at $69.83

    • In the case of a covered call that expires worthless, the writer of the covered call (the owner of the stock) gets to keep the stock. What is nice about this is that he just earned a premium from the call while is stock virtually stalled.

    • I agree with Oremet, the stock I have owned that has an in-the-money covered call sold on it is pulled out of my account, the settlement date that Scottrade lists is listed as Saturday, for whatever reason.

      I have heard that most of the in-the-money call options are bought by professional arbitragers on the last day of trading. They buy the call option below the intrisic price of the stock (notice that they always trade below the price of the stock), then instantly excersize the contract and keep the difference. But I may be wrong, I read that in a book.

    • I've always been confused as to why people think options can affect the price of stocks. They aren't even traded on the same exchange as stocks. Exactly what mechanism would be used to affect the price, who would do it, and why? How does someone that doesn't even own a stock affect the price of a stock?

      • 1 Reply to raybans2
      • It would be my understanding that although the individual who buys an option 'call' does not own the stock. Someone does own those 100 shares of the stock though and had put it onto the market as a 'covered call'.
        So the market does have to keep a balance of shares available to cover the calls if they come to expiration in the money. So if they lack enough shares to cover the $70 calls then they could work the price of the stock down in order to let the option expire worthless and therefore they do not have to let any shares exchange hands.
        Someone can correct me if I am wrong on that.

 

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