Would this be illegal to do?

Discussion in 'Strategy Development' started by thriftybob, Aug 8, 2006.

  1. Stock trades 1 million shares per day

    Buy 300,000 shares of stock
    Sell up to 300,000 covered calls
    Buy up to 300,000 puts
    Short 425,000 shares
    Wait for panic and crash to end or option expiration
    Calls expire worthless
    Sell 300,000 Puts or put 300,000 shares
    Buy up to 300,000 calls for next month
    Sell up to 300,000 puts
    Cover 425,000 shares
    Wait for price to get back up or expiration

    You get the idea. In other words postition the options, then buy or sell shares to move the stock to make the options pay.

    Also, Can you tell me where I can find the rules regarding this?
     
  2. lundy

    lundy

    my guess is, volume would increase and whoever the big player in the stock is would crush you.
     
  3. Its a fund doing it. We found it in their footnotes. They are only limited by the liquidity in the shares and options, and ability to cause fear.
     

  4. what issue is it? i am surprised the MM wouldn't be aware of this...
     
  5. zdreg

    zdreg


    you would have to sell 3000 calls to have a covered call position on 300000
    shares.
     
  6. zdreg

    zdreg

    it smells of market manipulation if true.. doubtful they are trying to cause fear.

    what makes you think they are trying to cause fear? have you spoken to them?
     
  7. Because the stock goes in and out of panic mode, coincidentally around options expiration dates, and almost magically closes below the strike.

    Sorry, I'm not a big options player. On the numbers of puts and calls, to get numbers of contracts, you're correct, you'd need to divide by 100.

    I'm not going to talk to them. I can't prove they are or aren't trying to cause fear. All I can prove at this point is that they are both long and short a large qty of the same stock at the same time. It would take an investigation to prove whether or not they were playing the options as I'vve guessed, but there is no point trying to prove it or investigate it if the whole thing is completely legal.
     
  8. zdreg

    zdreg

    what do you mean by panic mode?

    if you believe it to be true join the party.
    go short around expiration time when the stock price is above the strike price and then cover when it goes below the strike price.
     
  9. Panic mode is where the stock drops 5 or 10% per day to the strike price
     
  10. zdreg

    zdreg

    for how many days?
     
    #10     Aug 8, 2006