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RE: I am sure that options specialists are affiliated in one way or aother with the lead market making firms and that the so-called chinese wall would be better described as a direct line between firms. It is a given, with few exceptions, that the underlying issue will be brought to a closing level which maximizes the firms bottom line. I've done some work on this in the past but found it difficult, as not all options are written by the specialist. Funds and the public alike will hedge by shorting calls if they feel a move is overdone. This makes interpretation difficult in many cases. At this juncture, I would bet many AOL,YHOO and AMZN calls have been written by funds in an effort to hedge. Thus providing more fuel for a further advance. In terms of pricing, my experience has been the same as your friends. Option premiums tend to forecast moves with uncanny accuracy. Then once the move hits, premium's evaporate - heads they win, tails you loose. There are a few exceptions though. A recent example being AMZN immediately prior to the squeeze. With AMZN trading at around 51, the June 50's were around 4 or so if memory serves me correct. A bargain given the potential. MM's knew what was about to unfold and did not want to tip their hand to the more saavy shorts who watch premiums as a gage of upcoming price action. That is one of the rare gifts I use to help confirm my strategy. For another clue as to the inevatible crash of AMZN, watch the put premiums closely over the next few days. When put premiums hold (or even increase) as the stock continues to advance, you know they're about ready to pull the plug. I'll be watching for this in the next few days. |
