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Fat Fingering AXP Calls Or Does Someone Know Something?
There was some strange action in AXP calls today. Early in the morning a total of 107,600 in the October $25 Calls was traded (on 9,612 open interest), as well as 20k October $26 and 39,640 of the October $27.50 on 6,613 open interest.
The $25 transaction seems to have been a combination of two nearly offsetting trades of 50k sold at $9.20 and 57.6 k bought at $9.30.
And yet while the $25's could be explained by a simple fat finger (there was no material put action), the $27.50 trades were all long purchases.
Was there anything notable occurring at the time the calls were being traded? As the chart below shows (white vertical lines) nothing of significance was happening: the underlying stock was trading without any traditional "Atari 2600 on tilt" patterns. Furthermore, the overall action in credit card names today was definitely not bullish.
Is this some strange spread? With all active call families trading so deep in the money, it makes little to no sense. Which is why the only alternatives (especially with such a short time horizon) are: fat fingers or does someone know something? An acquisition of AXP for $40+ in the next 3 weeks would be quite a windfall to whoever was on the bid side of these transactions.
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You CC: the SEC on this one yet?
The WEB-slinger?
Contrary to the Amazing Fast Money N Bra's on CNBS, heavy call buying put in most recent equity tops...
JubileeProsperity.com
Nice big block traded at 16:02 as well 0.o
OK, well that ups the caution level on my AXP short...
I don't know who would wish to aquire them honestly
Beijing...with UST's
Suppose someone had gone massively short on AXP and then hedged using Call Options ... would that explain it ?
Of course, we can never see ( in real-time ) the short positions until it's too late !
nevermind
Unusual action in all the Oct Calls from $27.50 strike on down.
Ex-Div is tomorrow....trying to get the Dividend?
Bingo
+1
Wouldn't it be funny if AXP paid their upcoming dividend in rewards points?
+1
Me three.
Pricey options. Time will tell.
maybe someone had a dream last night
I once had a lottery number dream ( I had seldom "invested" in Lotto tickets) but as dreams go I only got four of the 6 numbers - I calculated that it would have cost about $15k to play the various combos - the following Saturday ...
Trades were done to capture AXP div, traders are attempting to get short deep Itm call options, they accomplish this by doing 2 deep itm calls. They will exercise the long call and hope someone forgets to exercise the call the traders got short, pocketing the dividend.
Trying to figure out how that works actually. could you explain more? is that technique over, was today the last day?
Hate to say it in a place like this, but happens all the time. Surprising how often someone isn't quite paying enough attention; might as well play the odds and game it.
Congress has long ago given up all moral authority on this issue. But, go figure. When you lay down with whores, expect to wake up with STD's.
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www.. hat tip: finance news & opinion updated daily
Why not just buy the stock and sell the calls? Why buy the calls and then exercise them? Seems like you're wasting the long call premium.
As long as the dividend is greater than the premium over parity in the option, the call is an exercise. Traders do the spread for value, ie, a 25/27.5 vertical will trade for 2.5.
American Express Company (AXP) is attracting massive call volume today, as traders attempt to capitalize on the firm's upcoming ex-dividend date. Most active is the October 25 call, with 107,600 contracts crossing the tape, followed by the October 20 call, with 41,308 contracts changing hands.
With AXP trading above $34 at last check, these front-month calls are deep in the money -- and it appears that most of them were sold to open, with many large block trades occurring closer to the bid price than the ask.
In other words, this appears to be a straightforward dividend capture strategy. In this tactic, a trader will take up a long position in the stock just ahead of its ex-dividend date, and simultaneously write covered call options against the stock position. The shares of AXP will drop by the amount of the payout when the stock goes ex-div, and the price of the sold calls will also dip -- making them cheaper to repurchase.
Now assured that he or she is entitled to the dividend payment, the trader can close out the long stock position, and buy to close the calls. The profit from the calls will generally offset the losses from the stock, leaving the quarterly dividend as the trader's ultimate takeaway. In this case, AXP's quarterly payout is currently set at 18 cents per share.
-posted by Elizabeth Harrow
9/29/2009 3:37 PM
Its part of an option arb strategy to try and capture the dividend. You buy or sell the spread for parity and exercise your long calls and hope you aren't assigned on the short calls. If you aren't assigned on everything you end up with the buy write on and you collect the dividend
Sorry for being such a troglodyte, but what went on with the airline options of eight years ago?
Down the memory hole with the Anthrax deaths? Who cares any more?
There was at least one serious academic study done on the unusual options activity in the airline stocks just prior to the 9/11 attacks. I have read it, and was convinced.
Allen M. Poteshman, University of Illinois at Urbana-Champaign
"Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001"
Abstract:
After September 11, 2001, there was a great deal of speculation that the terrorists or their associates had traded in the option market on advanced knowledge of the impending attacks. This paper generates systematic information about option market activity that can be used to assess the option trading that precedes any event of interest.
Examination of the option trading leading up to September 11 reveals that there was an unusually high level of put buying. This finding is consistent with informed investors having traded options in advance of the attacks.
See e.g. http://en.scientificcommons.org/22789070
I think there may have been another one authored by a professor at the Swiss federal institute of technology (ETH) in Zurich. I can't find that info at the moment though.
Does October 12th ring a bell to anyone?
No bells here; please elaborate.
Making the jump from 9/11 to 10/12? Colombus Day this year.
How can this recent post be the most popular already?
Is everybody buying AXP tomorrow c; wtf?
Please, clearly a fat finger -$5,700 fupk uc.
Everyone, this happens all the time the day before ex-div on certain stocks. Notice how all the volume was in-the-money. Check out GE sometime the day before ex-div. That volume is usually crazy. This is totally normal.
Hmmmm. A credit card. Thats all I see. The fundamentals for credit card for American consumers is a game already lost.
Buyer beware.
You can look at options and stock prices till' you're blue in the face. If you start marketing them to Chinese consumers I might be game. Otherwise this is noise I will ignore.
In this strategy traders are attempting to catch someone who is not paying attention. If you are long a deep Itm call it is the same thing as being long the underlying, but the long option does not give you a right to the dividend. So anyone who is long the option will need to exercise to take delivery of the stock. Option traders will attempt to get short the call that has the largest open interest, and apply the correct hedge(e.g short 10 calls long 1k shares). So if a person forgets to exercise the call the traders who are short do not get assigned, meaning their stock is not called away and the trader collects the dividend on the long shares from the hedge. Hope that helps.
Great job Tyler.
I'm might jump on this train just to see where it takes me. It has paid to follow the manipulators thru the murky forest so far. You'll know how my journey turns out.
Can someone please explain what you mean "hope someone forgets to exercise the call the traders got short, pocketing the dividend"
How can someone forget? Can someone please help me understand? Also, for those who have done this, how often does it work?
In an efficient options market should not work. The right to receive that dividend should be discounted in the price of the options. In the minute that the dividend is paid, the implied volatility of calls should go up and the implied volatility of puts go down. Any solfware to price options should adjust this to the penny.
Some trader must have thought that this dividend paid is not correctly priced in.
Isn't better to keep the info secret untill the actual event takes place (if there is one)and then present the data(like you did with the Perot case)?. This way,if prior knowledge will endanger an influencial person,the whole deal might be scraped untill a time when TD is not watching.Jus a thought....
Intelligent service provision to customers to ensure and improve quality of service around algorithm-selection, execution quality, market structure, technical advice etc.
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www.. hat tip: finance news & opinion updated daily
You guys make my brain hurt. Gumby Option Trading.
You have to exercise because only the stock gets the div, not long calls. So short calls long stock, get div, get assigned short stock, or if someone forgets you just get div. Sometimes people have to work for money. This is an example of catching others sleeping.
Good point here
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www.. hat tip: finance news & opinion updated daily
>Who cares any more?
Lots of people still do care about the truth.
always follow the money.
all the trades went thru DB.
buz was the head of DB private accounts,
but left that eight figure compensation
to be the head lawyer for the dci in 1998.
why?
all the trades went thru DB.
someone would have to flown to EU
to review the paper transactions for those trades.
but no one ever did.
mystery not solved.
cui bono?
hmmm...a credit card company
yup i see a market for that.
good call(s)
this must be a joke.
dividend spreads.. has to do with people being careless not exercising their deep in-the-money calls when stock goes ex-div..
How can the capture the dividend explanation be correct? I thought all in the money options are automatically exercised now.
If we were to have a bank holiday of some sort the shorts would not have time to cover before the assets were marked up. Mutual funds and pension managers are worried about their lent out securities not being returned in this kind if this kind of event were to occur. Many money managers are requesting the return of these lent out securities now while the borrower can still buy to cover.
Many pension and mutual fund managers are concerned about the potential of a bank holiday. If this were to occur their lent out securities may not be able to be returned as the marked up prices could warrant many hedge and short managers bankrupt. For this reason, some managers are currently being proactive and asking for the return of their lent out securities now while the short sellers can still buy to cover.
This is one reason why the market continues it's upward trajectory.
I used to work as a trading assistant for an equity options desk at a large broker dealer. We never attempted this theoretical arb for the reason you are basically praying that it's a retail customer at the other end who forgets to assign. Given the size here, that seems unlikely.