I could sure use some help with this one...
Thanks to all for a great educational thread....
GMGC Options as of 1/4/2000.
a. No Contracts are being traded for months other than Feb 2000. This has been the case for months. What does it mean ? Why such large interest for Feb and none for other months in the GMGC option cycle? Is something expected between now and Feb 18, 2000 ?
b. There are 52,139 Open Feb 5 Calls and 41,823 open Feb 5 Puts. I remember being frustrated back in Nov 99 when my order to buy Feb 5 calls for 1/8 was not getting filled even though thousands were being traded at 1/16. Heck - I was offering to pay twice the going rate - why wasn't my order getting filled ? It turned out that not only were thousands of Calls being traded during this period but so were thousands of Puts (identical numbers were being posted for the Call and Put vol). From memory, the stock was trading for about $2 a share and the puts were trading for $3.5. It then occurred to me that somebody was buying both the Call and Put and the orders were being broken up as 1/16 for the Call and 3.5 for the Put. I'm fairly confident that the Perferreds were the Buyers - and they probably bought close to 35,000 Feb 5 straddles (Combination Call plus Put) for about $3.5 while the stock was trading at $2 a share. Their purpose was multifold. One non obvious object was that by creating such a large and (by itself) absurd option portfolio - the Preferred's created a situation where there are now one or more Option Sellers who stand to make aggregate $12.25 Million dollars if GMGC trades at $5 a share on Feb 28, 2000. I believe that the Perferreds are banking on help from these Options Market Sellers to get GMGC stock price up to $5 on Feb 18, 2000.
c. The preferred's overall GMGC portfolio might resemble: A) 13,000,000 shares convertable at $1.65 (cost = $21,450,000); B) 35,000 Starddles (Feb 5 Calls + Feb 5 Puts) contracts at $3.5 (cost = $12,250,000); and C) 6,000,000 shorts at say $3 (money received = $18,000,000). With this portfolio, the Preferreds stand to make about the same amount of money on Feb 18 if GMGC is trading for $1 as they do if GMGC is trading for about $3.5 - which implies to me that the Prefferds are probably not going "long" on these Puts.
d. What's going to be interesting is to observe how the Prefrreds get out of GMGC. If they "step" out of this position, one leg at a time, are they going to take the first step with their "short leg" or their "long leg"?
Note - the above is just pure speculation. However, I'd be interested in any comments.
Best Regards,
John Madarasz |
