Options discussion that came up today...

[dnickers]

Thanks for the help Quasi. I bought the March puts @ 25 strike for ONXX. I just have a feeling that the big boys were pumping up the stock because of the experation today. All month there was heavy call buying. I think that there going to be selling all these shares after they exersice there calls. Could be wrong but I'll roll the dice.

Hey PKid -

Careful with options - they're a real easy way to lose money.  I've played with them a bit, and it seems like the only way to win with them is to own a TON of stock and sell covered calls on that ton of stock - or to own a TON of stock and protect/hedge your position by buying puts.  Unless you really think/know a stock is moving in one direction, it's pretty much an uphill battle.  Yeah, I've made 500% on a position in a couple days, but more often I've lost my whole investment in a call/put in the same amount of time or less.  But they are fun.  

However, keep in mind that 90% of all options expire worthless.  That only leaves 10% of them "in the money".  Much of that 10% is the option sold back to the option writer from the buyer for a profit.  Not many options are actually exercised, so I don't think you should worry about mass selling or anything like that.  People don't like to exercise options - there are tax consequences, etc.  There's a reason options have value just before expiration - the call/put writers are willing to buy the options back.  The value of the option is worth the same as if it were exercised and the stock was purchased - but exercising would lead to more commissions among other things.

Don't get me wrong though - options can and are exercised, but those events are in the minority.

One example of a strategy that you'd want exercised:  you really like stock XYZ, and would like to own it if it dropped to a certain point.  So you sell a naked put at the price you'd purchase the stock if it fell to.  If the stock doesn't drop before call expiry, you keep the premium.  If it does drop to below where you sold the put, the stock gets "put" to you and now you own it at the options price and get to keep the premium.

But like I said, for the most part (more than 90%) options are just traded back.

Good luck!
Derek