>
> What I'm describing here is the force at work that drives a stock to
> pin. Generally if there is a large open interest at a strike these
> options have been delta hedged to a large degree. By that I mean they
> have been pretty much converted into synthetic straddles (i.e.
> regardless of whether the options themselves are calls or puts) by
> expiration. What I described in the simple example is the straight
> call delta hedge that drives the stock back toward the strike as price
> rises. The same force is at work on the put side as well.
>
Having seen open interest at work in close detail, I buy it and don't
buy it. For the last three months the open interest did indeed pin the
stock. In other words had you bought puts you would have lost your money
for the most part. Though looking at those open interest levels it was
more or less obvious that the stock market would not drop.
Though the month before the past 3 months did have its open interest
blown away, and that rise in prices I do attribute to delta hedging.
There I saw the market move higher and higher and saw that for the most
part those selling premium just bought the underlying outright.
Christian Gross
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