The Specialist

The specialist is the individual/company in the Stock Exchange who is responsible for filling orders. His unique advantage is that he can see both sides of the order book. In other words he knows at what price the Buy orders are waiting at and he can also see all the Sell order. It's a simply matter for him to manipulate prices for his own benefit.

He does this by taking out Short Option orders against stocks he has on his books. He can then lower prices and make a profit through his Short orders.

This is the basic Specialist procedure:

1. His objective is to accumulate stock at wholesale and then rally
stock prices.

2. By rallying stock prices he stimulates public demand for his
stock. The larger the price advance, the greater the demand he
stimulates. [More often than not, this demand will occur the day
following the advance.]

3. Once public demand has enabled him to dispose of his inventory
at retail price levels, in order to supply additional demand he
then sells short-at what are oftentimes even higher retail price
levels.

4. Since the profitability of his short sales depends on a
subsequent decline in his stock, he will tend to limit the extent
of any additional advance 'above'  the price levels at which he
sold short. For practical purposes it can be said that once he
begins to sell short he will try to limit his short selling
[depending on the price of the stock] to within a 10 to 15 point
range. Once he halts his stock's advance, demand soon thereafter
begins to dry up.

5. When this happens, the specialist is in a position to begin the
movement of his stock's price down toward wholesale price levels.

6. As his stock declines from its high, he may encounter heavy
public selling. He can then use his short position to absorb that
selling by short covering. We must reconcile ourselves to the fact
[and learn how to exploit it] that the specialist is able to
control both advances and declines through the medium of his short
selling. ]

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