Trading post-bankruptcy bounces Message Board

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Microcap & Penny Stocks : Trading post-bankruptcy bounces

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To: Glenn Petersen who wrote (86)	7/12/2009 7:24:25 AM
From: RockyBalboa	of 93

I have talked to some brokers because I wanted to know whether there are incidents of early exercises of call options. So far there is no evidence that this occurred; on the other hand they could not reject the idea. So they see no urge to talk. Occurrences of early exercises would point to the cornering of the market because of a potential reward. And why would it make sense to early exercise; since the option traded at no or sometimes even a small negative premium. Had the market worked the call would never have developed a zero premium (and the pair a parity of -30%). "Existing short interest in calls leads to the purchase of common stock (at grossly exaggerated prices)": -assume you have a short call position ($1 strike) like I had; since GM is for all purposes worthless a $1 call must expire with no settlement. -The purchaser of said call would have every incentive to raise the price as far as possible and then, to early exercise the option. -Since you need to deliver stock you would normally end up with a short position. Since short positions can not be opened your broker turns around and buys you in on the same day. The person who exercised the call turns around and sells the stock. -Normally you would quickly move to replace the short call position on the other day. Now this is the crucial thing: Since this is not possible any more (as no broker allows to open a new options position since latest June 5th) you realise your loss with no recourse; with no possibility to replace the options position for later gain. The combination of not shorting the stock on delivery (effectively meaning cash delivery of the contract) and no longer opening short calls leads to a money transfer to the options buyer which can not be reversed. This is where authorities should focus on, and where reg SHO created real harm. But I guess, this is a futile christmas wish.

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