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Post by Deleted on Feb 16, 2013 12:41:28 GMT -8
We've now had 3 consecutive days of .48:1 (0 percentile ranking) P/C Ratio (lowest ever recorded). Question for those who know about this Put/Call Ratio: Travis from AAPL Pain has often stated that a low P/C Ratio means that a stock will have downward pressure on it, as the increase in Calls over Puts hold the stock down. In contrast, he thinks that a high P/C Ratio holds the stock up. Look, for example, what he posted on twitter tonight: But it seems like some here see a low P/C ratio means the opposite, that people are bullish so the stock may go up soon...? Thoughts? Looking back to Sept 21 AAPL's P/C Ratio was .98:1 and AAPL traded $705. The ratio went into free fall as AAPL dropped. I interpreted this as meaning that the higher AAPL went the more Bearish the market became, and that as AAPL went down, downside potential sending the Bears back into hibernation. After all, Puts go up as the equity goes down. The higher an equity goes, the more downside is created. The above does not preclude me from interpreted the effect of a Put/Call imbalance erroneously. I'd like to hear more thoughts on this as well. A separate thought. With the revelation that the institutions sold off goodly numbers of shares during Q4, I'm wondering if they were Put buyers prior to Sept 21, and that as they liquidated AAPL (driving the price down) they made money on their Puts. As they continued to sell AAPL, at lower and lower prices, their Puts made up the difference between $700 and the declining sell price. IOW, even though they were selling AAPL at ever declining prices, their Puts were effectively maintaining a sell price near $700/share. I remember commenting that the initial sell off seemed to stall at $630 (a 10% correction). This is when the Put/Call Ratio seemed to begin favoring Calls (earnings play?). What I don't think the institutions counted on was a shaken market's "perception" that AAPL missed its numbers just 4 weeks later, driving AAPL down even further. This caused a cascade effect that fed on itself until just recently. Until we near April earnings there isn't any urgency in returning to AAPL, certainly not until Institutional resources indicate that Apple has, or did not, make its March quarter numbers.
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Post by Deleted on Feb 16, 2013 12:47:34 GMT -8
Another thought on P/C Ration.
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up?
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Post by Deleted on Feb 16, 2013 12:54:49 GMT -8
Great roasting of the Times reporter. I mean, come on, he didn't think to plug it in? I'll bet he also forgets to fill the tank.
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Post by mstrmac on Feb 16, 2013 13:30:10 GMT -8
This has been in the news online and network Tv but yesterday my local TV news thought this was big news. The heading was " iPhone security flaw" involving passcode lock in iOS 6.1.1. They made a big deal out of it. Geesh i bet the sheeps really have a negative view of the iPhone now. Wow don't buy one. ABA's and Droidbots actually think this is a big deal.
Of course they did not elaborate what has to be done if you somehow let someone alone with your phone for 5 minutes.
Basically, the method involves going to the emergency call screen, tapping the power button, dialing the GSM international emergency number 112, canceling, holding down the power button again for a second or two and hitting "Emergency Call" again. The phone then unlocks for a moment. Hitting the home button immediately gives the user access to the contact list, calling app, voicemail and photos, all without entering the passcode. Additionally it does not work that way on Verizon or Sprint phones.
I think those Mac/PC commercials may have sparked a hate. I also see a little Apple hate resulting from the Samsung litigation in the larger Asia area. After all, big brother mainland China have been doing the copying thing and reverse engineering in military, space and consumerism for decades. Insulting when accused in a court of law of doing this and yet having to pay 1 billion on top of being insulted.
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Mav
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Post by Mav on Feb 16, 2013 13:56:14 GMT -8
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Post by archibaldtuttle on Feb 16, 2013 13:58:40 GMT -8
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock.
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Post by Deleted on Feb 16, 2013 14:15:53 GMT -8
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock.Thank you for that explanation. Frankly that coincides with my understanding of the role of MMs. But how does that reconcile with P/C Ratio reversal and AAPL's sharp decline starting Sept 21? If I understand the role of MMs and your explanation correctly, as Calls are written, offsetting shares are purchased by the MMs. Wouldn't higher demand for Calls (vs Puts) drive demand for shares?
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JDSoCal
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Post by JDSoCal on Feb 16, 2013 14:18:55 GMT -8
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock. ^ This. In fact, he says so in a recent tweet/twit:
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Post by roni on Feb 16, 2013 14:47:23 GMT -8
This board has not taken a good turn. As Red said, we are all bored, tired, and stuck in a Groundhog Day loop... I got 7 dividends last week. All good here
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Post by Deleted on Feb 16, 2013 15:14:20 GMT -8
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock. I'm going to chart daily P/C Ratio vs Intraday High and Low, going back about nine months (about 180 trading days) to see what, if anything, emerges. If a pattern seems to present itself I will go back another nine months. Whoops. my daily info only goes back about 45 trading days. Anybody have a site that shows P/C Ratio going back at least nine months?
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Post by Deleted on Feb 16, 2013 15:35:51 GMT -8
Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock. I'm still going to chart P/C Ratio vs Intraday High and Low, but there was something about the highlighted comment that wouldn't let me go. Those aren't open market trades. They are fulfillments on contracts written previously, and would have the effect of offsetting the upward pressure created when they were written. Not all of that upward pressure would be offset however, because of Calls expiring worthless., unless those shares held as a hedge against contracts (now worthless) are sold at market. But wouldn't it be smart to use those shares (already paid for) to hedge new contracts being written? If I was selling Calls against shares I owned, that's what I would do. Seems to me that the extent of upward, or downward pressure, would be limited to the change in overall Open Interest (applied where written), which of late has been nominal at best. Until I see some hierarchal evidence supporting this unwinding theory you can color me skeptical.
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Post by mace on Feb 16, 2013 16:25:37 GMT -8
I also see a little Apple hate resulting from the Samsung litigation in the larger Asia area. After all, big brother mainland China have been doing the copying thing and reverse engineering in military, space and consumerism for decades. Insulting when accused in a court of law of doing this and yet having to pay 1 billion on top of being insulted. Looking in the rearview mirror, Apple shouldn't have sued Samsung. What's done is done, going forward, accelerated the shift from Samsung.
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Mav
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Post by Mav on Feb 16, 2013 16:35:41 GMT -8
Last I checked, no one anywhere near Samsung's size and experience in the handset field dared try stuff like thenextweb.com/apple/2011/09/29/samsung-is-not-copying-apple-here-is-the-proof/So while Tim might not have wanted to go thermonuclear on Samsung, I can't blame Steve for vindicating Apple's IP rights (after all, that $1B award is still out there). It's a "no win" kind of situation maybe, but welcome to the interconnected world of business, and besides, what else are you gonna do? Just let people copy you? And wake me up when that little Apple hate actually shows up in the Greater China growth rate results. Because last I checked, there's all kinds of love for Apple there.
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Post by Deleted on Feb 16, 2013 16:45:24 GMT -8
Travis's theory is the opposite of what you state here. He believes that as Calls unwind, the Market Makers sell shares that they've bought to hedge the Calls, putting downward pressure on the stock. So the more Calls that are open, the more selling and downward pressure that needs to be overcome. Puts would be the opposite: MM's sell short the stock when Puts are first opened to hedge their position. Then, as expirations near, they buy back their short positions putting upward pressure on the stock. So, the more Puts that are open, the more upward pressure there will soon be. So therefore, he believes that a low P/C ratio will be a weight on the stock and a high P/C ratio will help lift the stock. I'm still going to chart P/C Ratio vs Intraday High and Low, but there was something about the highlighted comment that wouldn't let me go. Those aren't open market trades. They are fulfillments on contracts written previously, and would have the effect of offsetting the upward pressure created when they were written. Not all of that upward pressure would be offset however, because of Calls expiring worthless., unless those shares held as a hedge against contracts (now worthless) are sold at market. But wouldn't it be smart to use those shares (already paid for) to hedge new contracts being written? If I was selling Calls against shares I owned, that's what I would do. Seems to me that the extent of upward, or downward pressure, would be limited to the change in overall Open Interest (applied where written), which of late has been nominal at best. Until I see some hierarchal evidence supporting this unwinding theory you can color me skeptical. I love these thought exercises. My own reasoning was going to keep me up tonight if I didn't resolve this little conflict. Many here see a conspiracy with AAPL's seeming regularity in declining on Friday. Friday happens to be expiry day for each and every Option Period. Watching P/C Ratio action on a daily basis I have noticed that a great many Options "disappear" over the ensuing weekend (reflected in Monday morning's Open Interest. Could this Friday decline be the result of "unwinding", and there being a far greater number of Calls than Puts to unwind?
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Post by jeffi on Feb 16, 2013 19:32:07 GMT -8
Another thought on P/C Ration. Wouldn't Travis' thoughts on P/C Ratio be contra Max Pain Theory? After all, in Max Pain aren't Puts the magnet that hold an equity down, and Calls the magnet that draws them up? Wow Greg. You've got this backwards. I'm shocked considering the large options bets you place. It does amaze me how many people do not understand the mechanics of options. The basic lack of understanding of the dynamics of opening and closing options on price results in wild conspiracy theories. I know that many disagree. Unfortunately, I never receive a response that's on point.
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Post by jeffi on Feb 16, 2013 21:13:48 GMT -8
Thoughts: Options and their corresponding impact on common stock price:
Premise:
1. All things are equal 2. This is an intentional over-simplification 3. Market makers and professionals hedge options 4. Retail option buyers/ sellers do NOT hedge options 5. The initial act of hedging options impacts the common share price 6. Hedging a call drives the common stock up 7. Hedging a put drives the common stock down 8. Unwinding the long put or the call drives the price in the opposite direction 9. At expiration, hedged options positions have no material impact to common share price 10. At expiration, unhedged in the money options that are closed impact common share price 11. At expiration, unhedged in the money options that are not closed will cause a stock assignment 12. At expiration, assigned options have no impact on common share price 13. At expiration out of the money options have no impact on price
There is science regarding the opening and closing of options and the corresponding impact on price when the counter party hedges. I believe that the group think is wrong in blaming weekly and monthly options for holding Apple's price down because the original act of opening the option drove the price up. In other words, the net affect is neutral. But why is this not apparent? The reason for the disconnect is that the impact on price when options are opened is scattered over a long period of time and therefore less apparent than the impact on price at expiration which is concentrated and therefore more violent and obvious.
Jeffi
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Post by Deleted on Feb 16, 2013 22:08:07 GMT -8
Thoughts: Options and their corresponding impact on common stock price: Premise: 1. All things are equal 2. This is an intentional over-simplification 3. Market makers and professionals hedge options 4. Retail option buyers/ sellers do NOT hedge options 5. The initial act of hedging options impacts the common share price 6. Hedging a call drives the common stock up 7. Hedging a put drives the common stock down 8. Unwinding the long put or the call drives the price in the opposite direction 9. At expiration, perfectly hedged options positions have no material impact to common share price 10. At expiration, unhedged in the money options that are closed impact common share price 11. At expiration, unhedged in the money options that are not closed will cause a stock assignment 12. At expiration, assigned options have no impact on common share price 13. At expiration out of the money options have no impact on price There is science regarding the opening and closing of options and the corresponding impact on price when the counter party hedges. I believe that the group think is wrong in blaming weekly and monthly options for holding Apple's price down because the original act of opening the option drove the price up. In other words, the net affect is neutral. But why is this not apparent? The reason for the disconnect is that the impact on price when options are opened is scattered over a long period of time and therefore less apparent than the impact on price at expiration which is concentrated and therefore more violent and obvious. Jeffi Thanks Jeffi. I've never (well not for a very long time) believed in AAPL related conspracies. It just seemed impossible to get 1000+ institutions to agree to act in concert, and keep it quiet. I knew there had to be a logical reason behind the 'appearance' of a conspiracy. I just couldn't figure it out. Thanks to archibaldtuttle's initial post on the subject I got to thinking it through with that little extra kernal of info, and in my last post figured it out... ...with my comprehension confirmed by your post. Bottom line is that my understanding of the effect of P/C Ratio is/was backwards. The writing of Calls (over time) pushed AAPL higher, but the push was not noticeable because the impact was spread over a long period. But the concentration of unwinding all those Calls on expiry Friday shows up clearly in the decline of AAPL. I am pissed that it has taken me so long to learn this. I could have saved literally millions (had to make it so I could lose it, so negative impact not as bad as it sounds) over the last 5 years. Thanks. I hope others learned as much from this exchange as I did. It sure beats whining.
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Post by lovemyipad on Feb 16, 2013 22:27:45 GMT -8
Unfortunately, I never receive a response that's on point. NEVER? Where is the wringing-someone's-neck emoticon? Print and stick on fridge
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Post by Deleted on Feb 16, 2013 22:36:23 GMT -8
The hedging of calls and puts by market makers when selling contracts would be minuscule compared to apples normal trading volume - I don't see how it would have any affect on the share price.
The closing of those contracts in the final hour of trading every Friday however has a significant affect on the share price. The artificial pinning we see on a Friday afternoon is a gross distortion.
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Post by jeffi on Feb 17, 2013 3:00:52 GMT -8
Unfortunately, I never receive a response that's on point. NEVER? Where is the wringing-someone's-neck emoticon? Print and stick on fridgeYes, never. Sorry, but I don't see anything in your post that specifically refutes my premise that the act of hedging an option impacts/ drives the common share price in one direction at the opening and driving price in the other direction at the closing of said option (all things being equal). I understand that it usually is not a one to one exchange (which was not the point).
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Post by jeffi on Feb 17, 2013 3:13:39 GMT -8
The hedging of calls and puts by market makers when selling contracts would be minuscule compared to apples normal trading volume - I don't see how it would have any affect on the share price. The closing of those contracts in the final hour of trading every Friday however has a significant affect on the share price. The artificial pinning we see on a Friday afternoon is a gross distortion. I still think your missing my point. Selling shares slowly spreads out the impact on price so that it is less apparent. The impact is still occurring. Yes, the pinning at expiration is real resulting from the impact of the mechanical unwinding of unhedged options, not the manipulation of evil overlords (market makers and professionals) trying to screw the retail unhedged holders of options. Funny thing is, since market makers hedge, they have little incentive to manipulate price at expiration as they are hedged and therefore neutral to price. Interestingly, since open option interest is transparent is should be relatively easy to be gamed and therefore less violent than if the information was opaque.
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Post by jeffi on Feb 17, 2013 3:24:21 GMT -8
Per... www.optiontradingpedia.com/market_makers.htm"Market Makers protect themselves from directional risks through "Hedging" and flexible use of synthetic positions. A Market Maker hedges his inventory through buying or selling additional stocks or stock options in order to achieve a position whereby stocks and options falls as much as the other rises in order to maintain the overall value of the account. This is what we call a "Delta-Neutral" position. A Market Maker's positioning strategy, especially in making markets for stock options, is extremely complex and requires to the second calculation and execution. It is because of this complexity in balancing all kinds of risks that some new Market Makers actually lose money to the market despite all the privileges of being a Market Maker."
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Post by jeffi on Feb 17, 2013 3:39:19 GMT -8
Evil manipulation/ conspiracy theories:
It boggles my mind that so many are obsessed with conspiracy and evil manipulation. Apple is the hardest to manipulate by market cap and therefore the best bet if one fears this kind of thing. In other words, if I was an evil hedge fund manager I would be more successful manipulating a stock that I could control, e.g., small caps that are lightly traded. In fact, the little guy can front run the big money on Apple and actually outperform him. In other words, the board has it backwards. The little guys have the advantage!
Some on this board went off about a week ago regarding Blackrock's Apple position inferring some kind of evil conspiracy to manipulate. Totally without foundation. Clearly group think looking for a scapegoat to blame for AAPL's price drop rather than Apple's declining growth and currently falling profits. I guess it's human nature but I will continue to call out this kind of thinking as it serves no one and buries what otherwise can be learned from ones investing/ trading mistakes.
Lastly, stop complaining about option pinning. Since open option interest is transparent you can game it, front run it, and profit from it. In other words you have the advantage!
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Post by fas550 on Feb 17, 2013 5:44:42 GMT -8
Evil manipulation/ conspiracy theories: It boggles my mind that so many are obsessed with conspiracy and evil manipulation... Lastly, stop complaining about option pinning. Since open option interest is transparent you can game it, front run it, and profit from it. In other words you have the advantage! It shouldn't boggle the mind. People look to an unknown force as an explanation when they can't explain what they see. Closely linked is people's need to explain things with a singular tidy explanation. It's human nature. To attach a more extreme analogy it's similar to someone seeing something they can't explain in the physical world and using a supernatural force to explain it: e.g. It's a ghost, Gods will etc...
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Post by lovemyipad on Feb 17, 2013 6:00:53 GMT -8
Yes, never. Sorry, but I don't see anything in your post that specifically refutes my premise that the act of hedging an option impacts/ drives the common share price in one direction at the opening and driving price in the other direction at the closing of said option (all things being equal). I understand that it usually is not a one to one exchange (which was not the point). Perhaps because I'm not refuting it? Perhaps because I am completing your incomplete explanation of the science. Perhaps because in your zeal to argue with the masses supposedly suffering groupthink -- as if NO ONE besides yourself properly understands the science -- you continually fail to recognize when SOME people are saying the SAME thing as you versus something DIFFERENT.
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Post by lovemyipad on Feb 17, 2013 6:15:50 GMT -8
Funny thing is, since market makers hedge, they have little incentive to manipulate price at expiration as they are hedged and therefore neutral to price. Wrong. GAMMA effects -- which explode into OE -- require rebalancing to get back to delta-neutral, which you should know since it's the science behind the pin. I did spell this out in my linked post, using the most literal language possible, avoiding behavioral finance analogies for any readers with Asperger's among us.
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Post by lovemyipad on Feb 17, 2013 7:07:20 GMT -8
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Post by artman1033 on Feb 17, 2013 7:55:22 GMT -8
WHOA! Intense preoccupation with a narrow subject, one-sided verbosity, restricted prosody, and physical clumsiness are typical of the condition, but are not required for diagnosis.My guess: anyone with over 100 posts here has this problem.
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Post by jeffi on Feb 17, 2013 8:04:18 GMT -8
Unfortunately, I never receive a response that's on point. NEVER? Where is the wringing-someone's-neck emoticon? Print and stick on fridgeI said the following... "It does amaze me how many people do not understand the mechanics of options. The basic lack of understanding of the dynamics of opening and closing options on price results in wild conspiracy theories. I know that many disagree. Unfortunately, I never receive a response that's on point." Your response does not make sense. If you don't disagree (I was referring to those that disagree), then your not refuting my point. That was my point.
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Post by jeffi on Feb 17, 2013 8:21:26 GMT -8
Yes, never. Sorry, but I don't see anything in your post that specifically refutes my premise that the act of hedging an option impacts/ drives the common share price in one direction at the opening and driving price in the other direction at the closing of said option (all things being equal). I understand that it usually is not a one to one exchange (which was not the point). Perhaps because I'm not refuting it? Perhaps because I am completing your incomplete explanation of the science. Perhaps because in your zeal to argue with the masses supposedly suffering groupthink -- as if NO ONE besides yourself properly understands the science -- you continually fail to recognize when SOME people are saying the SAME thing as you versus something DIFFERENT. 1. I'm not an expert. Never said I was. 2. I'm not arguing with everyone, only those that disagree. 3. There is a contingent of conspiracy theorists here. 4. Few are countering the group think conspiracy theories. 5. I have not seen any attempts to go as far as I have to address the dynamics of pricing on common stock at the opening and closing of options, hedging, and pinning. 6. A typical comment I receive is "I want what he's smoking" etc. Not exactly point on. 7. Greg is a prolific poster and a large "player" when it comes to options and he has only now figured this out. Therefore, my posts have done some good and according to him are five years late.
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