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Re-sent with corrected address
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> From: Stan Rubenstein <stansan@xxxxxxx>
> To: Real Traders <realtraders@xxxxxxxxxxxxx>
> Subject: Post Expiration Announcement
> Date: Tuesday, January 20, 1998 9:18 PM
>
> Today Merck (MRK) gapped up by 3 points at the opening; from Friday's
close
> 109.75 to 112.xx and finished
> the day at 115.5 - a last trade. The MRK gap up this morning was
attributed
> to a strong recommendation by Deutsche
> Morgan Grenfell (DMG) which called MRK the single most important Drug
stock
> for 1998! The MRK run-up was also aided
> later in the day by today's announcement of a pending merger between
> American Home and Smith-Kline Beecham.
>
> I took out some Covered Calls on MRK a month ago in Dec. when it shot up
> from 95 to 105 in a couple of days
> The options closed last Friday almost in the money for the Call buyers
but
> not enough for my positions to be called away.
> So while I can breathe easier the Call buyers must have wished DMG had
made
> their recommendation public before
> Friday's expiration.If I had been on the other side of the trade with
> January expirations I too would have thought the
> timing of the DMG decision was deliberate.
>
> The problem I would like to address to RT group concerns the timing of
the
> DMG recommendation relative to Option
> Expiration. As follows:
> I know from my own corporate experience that such Broker recommendations
> are not made overnight and usually
> require time for reviews by management levels in the Brokerage. This
could
> be a matter of days or a even a week.
> Since Option expiration was close at hand when DMG must have made the MRK
> decision they had to also decide
> on which side of the Expiration day to make it public..
>
> Would they have taken into consideration that many Call buyers would
> benefit from a pre-Expiration announcement
> and DMG didn't want to unduly enrich such outsiders?
>
> Since some of DMG's preferred clients with early knowledge of the pending
> public recommendation would have placed
> MRK calls to take advantage of it an announcement before expriration
could
> have appeared self-serving to DMG.
>
> Or are there any SEC rules governing the timing of Broker recommendations
> on or about Options Expiration date?
>
> The Open Interest on Jan 105 and Jan 110 calls was approximately 13,500
> contracts so this decision by DMG
> was not trivial.
>
> Hope to hear from RTers who share the question; what are the factors
> governing a Broker Recommendation
> Announcement prior to or after a near-in Options Expiration?
>
> Regards,
> Stan Rubenstein
>
>
>
>
>
>
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