December 17, 2007
Members of the SEC staff,
Last week, as has been par for the course these past years, the Options Market was once again used for what appears to be inside trading. As the SEC sits back and watches the growing abuses of this market by greedy investors the investing public, and the confidence of the markets are put into jeopardy.
It has been clearly stated by many here that the short sale investors are buying the options market maker exemption to short a stock that is otherwise unavailable for shorting. In the process the equity market is manipulated. Last Friday the options market was being used to once again trade ahead of merger news netting some investors a nice holiday present.
When exactly does the SEC plan on addressing this latest venue for crooks and criminals?
I sure hope you guys know what you are doing because us guys out here don't get it.
Back to the Wild West in Options Land.
Did Someone See This Trane Coming?
Shares of Trane streaked higher Monday on news that the air-conditioner maker would sell itself to Ingersoll Rand for $10 billion. But on Friday, it was Tranes options that were on a tear.
How big was the spike? Consider that during the first week of December, an average of about 4,400 call options related to Tranes stock were traded each day, according to the Options Clearing Corporation. During the entire month of November, 3,448 Trane call options were traded. But on Friday, nearly 45,000 call options changed hands. The uptick caught the attention of OptionMonster.com, which wrote Friday in its blog: Are these new buyers hoping to catch a stock that may be in play?
On Monday, Trane announced it would be acquired by Ingersoll at a 29 percent premium to Fridays close.
Call options, which let the holder buy shares at a specified price, can yield huge profits if the underlying stock rises — such as when a takeover is announced. There are lots of reasons for unusually heavy trading in call options, but it is sometimes seen as a sign that a deal was leaked before its formal announcement.
Trading in Tranes puts, which become more valuable if the stock falls, was much more muted Friday. Less than 6,000 put options were traded.
Among Fridays most actively traded Trane options were December options allowing the holder to buy shares of the company at $40 apiece.
Those options, which were days away from expiring, suddenly became deeply in the money on Monday, as Tranes stock jumped from Fridays close of $37.20 to $45.91 in midmorning trading.
For whoever bought those options, that is a big holiday present.