You're right about most companies Aaron. GM tends to make the declaration 1-2 weeks prior to ex-div. Not only that, but rarely does it show up under the news or headlines. Lol, this time, whatever it does will show up. Those guys can't order lunch without someone reporting it lately.
Using the Hoadley excel early exercise calculator it looks like early exercise is unlikely unless the sucker moves down below 28 again...
Did the options prices converge to give you that profit , or did you leg out of it as part of a trade? Awfully fast for that skew to dissapear.
No, I exited all at once this morning, before the S&P downgrade happened. Covered the short common at 32.45 Covered the short put at 1.30 Sold the long call at .70 Nothing had changed regarding GM from yesterday afternoon when I put the trade on. And the skew was present all afternoon, not a blink and you miss it arb opportunity. So now I'm even more perplexed and wondering just how often a guy can find trades like this. Maybe not this fat, but nickels and dimes.
This explanation makes sense to me. From John Succo, who writes at minyanville.com. Dear Mr. Succo, I own the General Motors (GM) 2007 30 Puts . I came home expecting to see huge losses, but my options were only off by $1.30. I remember a month ago before GM had its big announcement GM was trading at around these levels and the puts were worth $3 and change and now they are worth $7 and change. I am puzzled. Minyan Tsachy position in GM Tsachy, First of all, the stock was up yesterday over Mr. Kerkorianâs tender price of $31 after it traded some 60 million shares, nearly six times the normal recent volume (one funny thing is that so far we havenât actually seen a tender offer from Mr. Kerkorian, just the rumor of one). The stock traded as such mostly due to an engineered short squeeze: a âlarge holderâ of some 30 million shares unexpectedly recalled the previous night the stock âheâ was lending out (meaning the owner of those shares who was previously lending those shares to short sellers pulled them back). Short sellers were forced to cover (buy back) their short position at the market price. The stock was up for primarily technical reasons. As an aside, I think it is hilarious that several brokerage firms that had been strongly recommending selling the stock turned around last night and recommended it. Why didnât they see the value before Mr. Kerkorianâs dealings? Anyway, your option position is âovervaluedâ exactly because of the technical situation described above. Option traders that were short puts and hedging it with short stock had to cover that position. They had to pay any price necessary to cover those short puts so they bid them up to prices that cleared the market. The only sellers of puts yesterday (because no one could borrow the stock) were holders of stock who sold their stock and sold those puts (as a pseudo-stock replacement) to take advantage of those high prices. For the same reason all calls were trading much cheaper than theoretical value. Once the stock becomes available to borrow again (whenever that is), those puts will fall in price to theoretical value based on the current implied volatilities as traders can once again step in and arbitrage those prices.
[QUOTE First of all, the stock was up yesterday over Mr. Kerkorianâs tender price of $31 after it traded some 60 million shares, nearly six times the normal recent volume (one funny thing is that so far we havenât actually seen a tender offer from Mr. Kerkorian, just the rumor of one).[/B][/QUOTE] What BS. Then I wonder what this press release is all about: Press Release Source: Tracinda Corporation Tracinda Announces Tender for General Motors Shares Wednesday May 4, 8:30 am ET LOS ANGELES--(BUSINESS WIRE)--May 4, 2005--Tracinda Corporation today announced that it intends to make a cash tender offer for up to 28,000,000 shares of common stock, par value $1 2/3 per share, of General Motors Corporation (NYSE: GM - News) at a price of $31.00 per share. The offer price is without regard to General Motors' regular quarterly dividend of $.50 per share expected to be paid in June 2005. Accordingly, stockholders will be entitled to retain the dividend expected to be paid in June 2005. The offer price, including the regular quarterly dividend, represents an approximately 13.43% premium over General Motors' closing stock price of $27.77 on May 3, 2005. The tender offer will be subject to customary conditions for transactions of this type. The tender offer will not be subject to any financing condition or any other non-customary conditions. Tracinda Corporation, of which Mr. Kirk Kerkorian is the sole shareholder, currently owns 22,000,000 shares of General Motors common stock, which represents approximately 3.89% of the outstanding shares. Tracinda's average cost for such shares is approximately $26.33 per share. The shares to be purchased pursuant to the offer represent approximately 4.95% of the outstanding shares of General Motors common stock. Upon completion of the offer, Tracinda would beneficially own 50,000,000 shares of General Motors common stock, or approximately 8.84% of the outstanding shares. Tracinda will hold the General Motors common stock for investment purposes. Tracinda became aware of rumors over the weekend concerning its possible purchase of shares of General Motors stock. Since Tracinda's acquisition of General Motors stock is solely for investment purposes, it decided to go forward with this tender offer to remove any uncertainty in the marketplace as to its investment intent. Once the tender offer is commenced, offering materials will be mailed to General Motors stockholders and filed with the Securities and Exchange Commission. General Motors stockholders are urged to read the offering materials when they become available because they will contain important information. THIS DOCUMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SECURITIES. TRACINDA HAS NOT YET COMMENCED THE TENDER OFFER DESCRIBED HEREIN. THE TENDER OFFER WILL BE MADE ONLY THROUGH AN OFFER TO PURCHASE AND RELATED LETTER OF TRANSMITTAL. INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THIS TENDER OFFER STATEMENT OF TRACINDA AND THE RELATED LETTER OF TRANSMITTAL WHEN SUCH DOCUMENTS ARE FILED AND BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. THE TENDER OFFER STATEMENT WILL BE FILED BY TRACINDA WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). INVESTORS AND SECURITY HOLDERS MAY OBTAIN A FREE COPY OF THIS STATEMENT (WHEN FILED AND AVAILABLE) AND OTHER RELEVANT DOCUMENTS ON THE SEC'S WEB SITE AT: HTTP://WWW.SEC.GOV. THE TENDER OFFER STATEMENT AND RELATED MATERIALS MAY ALSO BE OBTAINED FOR FREE BY DIRECTING SUCH REQUESTS TO TRACINDA. -------------------------------------------------------------------------------- Contact: Citigate Sard Verbinnen Anna Cordasco / Stephanie Pillersdorf / Carrie Bloom 212-687-8080 -------------------------------------------------------------------------------- Source: Tracinda Corporation Obviously, there was a press release issued that Uncle Kirk was going to buy stock through a tender offer. Does not look like a rumour to me.
Article about GM options and how synthetic stock is selling at a 5% discount to GM shares on page C4 of today's Wall Street Journal. Thanks to Rearden Metal you heard it on ET first! Aaron Schindler Schindler Trading
What about buying the May 05 30 call and 27.5 put, while writing the 27.5 call and 30 put. The net credit is 2.65, resulting in a quick .15 cent profit. Is there any risk to that? What are the odds of the call holder exercising leaving me short, and would that result in a forced buy in?