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February 12, 2008 – Comments (1) | RELATED TICKERS: DSTI

Hi I am barely beginning to understand buy and sell...

I read about big money players purposely trying to keep a stock price within a range to have their options come in the money... It makes sense that after the third friday, that pressure will rebound. Does this make any sense and if anyone knows about this I would love to read it or be directed to some posts about it??

snowy

1 Comments – Post Your Own

#1) On February 12, 2008 at 11:02 AM, Imperial1964 (97.92) wrote:

I'm no options trader, but I've read opinions that sound kind-of like that.

I think what you're talking about is options sellers trying to keep the options from coming in the money. If stock prices don't move, the option buyers don't make money. But the sellers do because they sold options that expire worthless. With the leverage options offer--that is, you can control a large number of shares with just a few dollars--it is conceiveable that a big option writer might find it worthwhile to buy or sell a large number of shares right at options expiration in order to move the stock price back to where the option will expire worthless.

I've heard people spout such theories, but I don't think it would be practical. Buying or selling enough shares to move the share price would require huge transactions and it's not guaranteed to work.

But what (unscrupulous) options sellers sometimes do is start a rumor to sway the markets before options expiration. If the market has dropped too far, you might hear rumors about Warren Buffet buying out a bond insurer or making a huge investment in a bank. Such rumors have caused market rallies and saved option writers money at the expense of options buyers.

Don't worry about options trading at this point. 70% of options expire worthless. That means a 100% loss for the buyers 70% of the time. And for the options writers, the 30% of the time they lose money, perhaps 10% of the time they lose BIG. Options are far too volatile for me.

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