Subject: Re: A warning for mechanical investors.
Dear anchak,
You wrote:
> Since Call Writing is marginally bearish - which means the so called "Smart Money" or institutional investors are selling a bit into the rally.
No.
1) Market makers generally seek to profit from bid-offer spread and arbitrage. They are not 'marginally bearish', they are aiming to be neutral w.r.t stock movement. The bearishness of a sold call is soon balanced by an appropriate small net long position in the stock (or by a combination of stock/put, or by buying a call).
2) As the market/stock rises, those market makers who have a net 'sold calls' position when viewing their aggregate position, must *buy* to cover their increased chance of a payout. Delta is increasing as price moves towards strike, therefore they must buy.
3) MM's who must remain price-neutral w.r.t. the calls they have sold, certainly do NOT 'sell into rallies', contrary to your beliefs. Very much the opposite and for obvious reasons.
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Seperately,
a) Please CAN you MAKE less use of CAPITALISED WORDS all OVER your POST. It will INCREASE the comprehensibility OF YOUR writing. Your POST was extremely UNCOMFORTABLE and difficult TO read.
b) For quotes, the "" syntax is commonly used in English. Please, don't use the words QUOTE ENDQUOTE. It's a moral crime against the English language and I am the QUOTE QUOTE POLICE UNQUOTE.
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> For them the net objective ( especially in a dividend paying portfolio etc) - is that whether they were able to protect the underlying ownership
I think you are confusing 'random people who sell calls as a way to make extra money or take a position' or 'random institutional managers aiming to increase return on the stocks they hold' as opposed to 'market makers'.
Random people and institutions may take a net long or net short position via calls or stock depending on their choices.
Market makers generally aim to remain neutral.
(Institutions and individuals, in aggregate, balance out net long, for fairly obvious reasons.)
lux