Christian wrote:
>
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.
mc- delta hedging doesn't usually move the underlying directionally. To a
hedger there is really no such thing as puts or calls in the conventional
sense; it's really all about being long or short strikes. Since, to a
hedger, any put equals a call and vice versa, it all comes down to managing
risk and massaging a position to be either long or short volatility at any
particular strike. The pin phenomenon just makes the hedging action very
obvious, but hedging action is happening all along the price continuum
constantly.
If somehow you have special glasses that allows you to see obvious
directional tendencies in all this, put me down for a couple pairs. :)
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