Via FTAlphaville:
My worry, as I discussed with my clients, was that as the index approached 4,100 or higher, the threat of intense selling by capital-tight brokers at 4,500 meant that anyone buying shares was implicitly giving away a free call at 4,500, and the higher prices went, the less upside there was and the more downside.
By the way remember that if you are long the underlying asset and short a call option, you are effectively short a synthetic put option struck at the same price as the call option. This means that anyone who owns shares might in fact be short a complex synthetic put option on the market, and as the put becomes increasingly less out of the money (i.e. as the index approaches 4,500), the value of the put rises, and so the loss to the implicit “writer” of the put would also rise.
