Options update for 11/28...Strange days
Friday turned out to be quite eventful, contrary to the normal semi-holiday action we all expected.
Inco: The Financial Post ran a front page article stating that the entire market cap of Inco is now less than what Noranda bid for Voisey Bay; the inescapable conclusion is someone could buy Voisey cheaper than before and have Sudbury and everything else thrown in for free by making a bid for Inco. I mean, if you liked N at $42 in August, you sort of have to like it a lot more at $25. Naturally everyone wanted to go through the door at the same time, and call option volatility skyrocketed. As I was already short premium on balance, this didn't thrill me. Luckily I bought a whack of stock at the opening so I had some wiggle room. At one point we had a seven point difference between the call and put vols. This is almost unheard of, because it means one can almost put on a virtually risk-free long conversion 'on the markets'. Anyway, instead of the hoped-for call sellers, we instead got put buyers, so the spread narrowed as we dialled the puts back up. I seriously doubt anyone can make a successful takeover of Inco, but it will be interesting to watch. Btw, Inco rallied $2.25 to $27.40. (42,38)
BCE: There's no such thing as 'inside information'; some people just hear stuff earlier than others. Bell was acting strong all morning, even with NTL down over a buck and the Dow retracing into negative territory. Than the news came out that Bell had announced a 'normal course issuer bid', meaning they were going to buy back in the market about 1 1/2% of their stock over the next year. Bell spiked a dollar on the news before settling back a touch. Now generally these issuer bids are a load of bunk...they don't actually have to buy what they said they would; indeed, on Oct 20 1987 I think 200 companies responded to arm-twisting from the NYSE and the Fed and announced issuer bids. Something like 5% of all announced purchases actually took place. Bell has a year to decide how much, if any, they will actually buy. I certainly wouldn't base any investment decision on this action alone. Call sellers came out of the woodwork as the stock rallied, hammering in particular the 45 lines so we dropped the call vol across the board. (25,25)
ABX: Barrick tried to rally Friday on a bounce, particularly with the gold market closed, removing that pressure, but after reaching $23.60, ABX softened a touch to 23.40. It looks like they want to take it higher, but I think bullion will test 280-285, and it's hard to see much of a rally for Barrick in that case. Still waiting for premium sellers to arrive; so far nothing but buyers in puts and calls. Very tricky position to be short both on a large scale...hard to hedge, using all my margin, and seems to make my bed very uncomfortable. (Why else would I toss and turn all night?) (45,45)
BLD: This puppy has some decent moves...I can't understand why more people don't trade the options in it. A two dollar move is almost the norm. Jan, was that you who did the April 75 buy-write? Sounds like the strategy you liked. A one-up covered write is the same as selling puts naked. Sort of puts a different spin on it, no? (54,54)
The TSE announced the departure of its VP in charge of IS for 'personal' reasons. Sure. He was made to walk the plank, like so many others before him. The TSE is in complete disarray in my opinion. The systems are not reliable, they don't work well even when they're up, promised upgrades never appear, etc. These people simply don't know what they're doing. Trading is an alien concept to them. They are way over their heads and are either too stupid or too arrogant to admit it.
The proposed automation system for options is a disgrace. We have been working through the specs on it, and it will not work. Here are just a few of its show-stoppers: it effectively eliminates GTC orders and market orders almost any time, but particularly before the opening; no pre-opening indicated markets; something like 60% of all markets will be 'dark', i.e., no live quotes; and the abolition of client priority.
They are trying hard to find work-arounds, but in reality they are changing our rules to fit the stupid machine. It's like cutting off your toes so you can fit into a fancy new pair of shoes. The broker who is the largest trader in our market is against it, and more and more people are seeing how negatively it would affect us as they see more detail. I only pray the exchange can admit a failure and stop this before it's too late. There is an inexpensive alternative, namely an electronic book. The software exists, and can be bought 'turn-key' for about 1/50th of what the exchange is prepared to pay for OM. An electronic book, which we asked for in the mid-80s, permits electronic order entry into the central book and automated trade reporting. Full disclosure, retains the auction process, reduces about 70% of staffing levels, keeps the integrity of our rules intact, what's not to like? I even asked Steve Rive, VP of derivatives, if *we* (the specialists) could buy it and have it installed. He said no. Someone has to talk some sense into these MBA mandarins before it's too late.
A little house-keeping. I mentioned that I had received e-mail from Dan C., and would answer when I could. Who knew that there are *two* Dan C.s out there who had e-mailed me? So, Dan C. #1, when I find your e-mail which I seem to have misplaced, I will answer. Ditto #2. (Although I haven't misplaced yours).
Happy trading.
Porter |
