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Biotech / Medical : Tularik Inc. (TLRK)
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To: scaram(o)uche who wrote (239)6/21/2002 12:48:03 PM
From: Czechsinthemail  Read Replies (1) of 598
 
>>My question...... what does the fund manager gain, all fronts and every conceivable angle, from letting it be known that he/she is going to sell and is willing to sell at much lower prices? How do the buyer and seller profit in the interim, between the advertisement of shares available and the consummation of the trade?<<

Looking at the open interest in TLRK's June contracts going into expiration, there is very high open interest in the June 12.50 calls (313 contracts) and the June 10 puts (430 contracts). This is much higher than the open interest for other months and other strikes.

Normally you would expect the bulk of the option contracts to expire worthless. However, in this case it looks like the money is being made by selling the June 12.50 calls and buying the June 10 puts. My question is whether these positions might have been coordinated so that those selling the calls were simultaneously buying the puts -- effectively creating a stronger bet that would be show maximum profitability so long as the stock closed below $10 at expiration. That would seem to be an alternative to or perhaps a supplement to profiting from an outright short position in the stock.

I'm curious about the possibility that someone could be hedging (or frontrunning?) their share liquidations via counterbalancing shorts or option transactions. Even more sinister would be to do it and then buy back the shares before the end of the quarter so there would be little or no net liquidation but a trading profit realized along the way.

Meanwhile, TLRK and several other small biotechs seem to be swimming upstream today. I've heard many small cap fund managers mentioning small biotechs as value plays, so perhaps in the midst of a generally negative market climate they are putting some money into the sector.
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