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Biotech / Medical : Sepracor-Looks very promising
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To: IRWIN JAMES FRANKEL who wrote (6032)6/16/2002 12:42:48 PM
From: Londo   of 10280
 
At the close with SEPR at 10.14 the B/A was 2.60/3.00. With SEPR at 9.80 and a trade at 2.70 that looks like it is closer to what the ask would have been at the time leading to the inference that the trade was innitiated with a buy. (oi 0)

I was pretty careful in saying "As far as I know", because unfortunately I don't have access to nice market data that would tell me the exact bid/ask at the time of the trades (turns out it was 400 contracts at 11:41, 1400 contracts at 11:47, and 200 contracts at 11:57, all at $2.70).. but extrapolating back a $10.14 common stock price, and a 2.60/3.00 bid/ask spread implies the specialist is buying at 66% implied volatility, and selling at 72%.

Using these same parameters for a stock trading at around $9.80, we get a theoretical bid of $2.41, and an ask of $2.81. Which puts the $2.70 trade closer to the ask, but still within the spread.

Now, the problem with my calculations is that I'm using the Black Scholes model, which I'm absolutely sure is NOT the method that the specialist is going to use to calculate the value of these LEAPS. Just think of it this way - would a January 2005 LEAP have a delta of 51%? I seriously doubt it! Which makes me think that the trade occurred between the bid-ask spread.
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