Sorry but there is no "usual" way to hedge and the stock holder can choose to do it anyway they like. I am equally as sure that order was shopped upstairs long before it hit the tape.
well, I guess we just have different experiences. Also, this was not a hedge - that's a mistake to call it that. It's a closing of a position which is very different. That's why hedges are usually < 50 delta. Even if this person was long stock and got out - if they had this info, that's still an SEC violation. The SEC bans unfair gains AND unfair avoidance of loss. Also: Largest direct shareholder is David Hung - 1.4 million shares. Largest institution is Barclays - 1.8 million shares. This was for 2.6 million shares. Even if someone had options that don't appear on insider rosters (which is possible) 2.6 million would be enormous relative to the numbers above. It's not gonna be just a guy. It's gonna be someone with unique knoweldge about the company.
Not sure what your experience is but I have 20 years in the business both on the floor and from institutional desks. I didnât say it had to be a hedge, I just said you really have no way to know. I agree the whole look of the trade stinks and I would guess the SEC is already involved. My main difference with you is that you have now said .35 deltas is the usual hedge and then you amended that to < .50 deltas above. If someone wants out then they're going to use whatever way they can, there is no âusualâ and the end user can decide what the proper hedge for his comfort level is.
I'm floor right now; we're similar in experience. Just to clarify, I said < 50 delta in the second post... Anyway, we agree it's suspicious, let's hope the SEC does what they have to in order to figure the mess out. Thanks for the give and take.
You have 20 years in the business? Making markets on the floor and providing off floor liquidity in everything from plain vanilla to otc exotics on all sorts of underlyings? The floor today is about making sure all your systems are running right and you're streaming quotes in line with the markets. Dont take it the wrong way, its just different than making prices in all sorts of derivatives. By the way I ammended my last post and added the "<" before the .50 deltas but that does not change the facts. I am sure its a lot harder in many ways to make money just being on the floor than it was in the past. Personally I would rather be a market taker than a market maker with the width of the markets your computers spit out these days. No question if I was on the wrong side of that trade I would call Stock Watch right away and the SEC. We agree there that thing stinks to high heck.
I agree it is a phishy trade to say the least. What is the OI - who knows how much was an off-set against an existing position? Additonally, I have hedged long deltas with long put spreads that are less than 50 delta, just because I wanted gamma. However, I tend to agree - it's a leveraged bet on being in the know - rather than a hedge of any stock. As I too have 20+ years in the options market (wink wink - I see you ex-TimberHill lurkers) opps - I have now shown my hand....got to go...
The OI went up on the calls then down the day after when the were purchased 0.00 x 0.05. i.e. the trade in the calls was the opposite of buying - aka, selling.
Why can't it be legit? Surely someone who is long a boatload of stock before an important drug announcement has an obvious reason to hedge their stock with options.