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OPTION ABITRAGING IN FULL SWING
They buy the deep calls for zero premium and sell a higher strike call that has a premium. The combined buy/sell is a neutral transaction on its face. The paired transaction is neutral so it it does not affect the trading price that much. How else could they take a 40,000,000 share position in one day without dramatically affecting share price.
They will exercise the deep calls today and own shares for the dividend.
They will have sold the call options and will be able to exit the share positions when they calls are assigned.-
They buy the deep calls for zero premium and sell a higher strike call that has a premium. The combined buy/sell is a neutral transaction on its face. The paired transaction is neutral so it it does not affect the trading price that much. How else could they take a 40,000,000 share position in one day without dramatically affecting share price.
They will exercise the deep calls today and own shares for the dividend.
They will have sold the call options and will be able to exit the share positions when they calls are assigned.
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ok, selling the higher strike make sense. just the same the option MM by selling short is just lowering the price of the calls. The option MM care less about the stock pps, he/she makes money by arbitrage. the more ppl buy the better for MM.- 1 Reply to mystk7
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There are many, many combinations of trades (options + stocks) that can be combined to execute an arbitrage strategy. The key elements are a combination that the entry position and exit are fixed so they are able to take shares early. The cost should be less than the dividend. If they bought the deep at 0 cents premium and sold the shallow as an exit path with they are called.
The number of call contracts was high today.
JAN2014 $15 84k
JAN2013 $17.50 148k
JAN2013 $15 208k
JAN2013 $12.50 41k
JAN2013 $10 65k
DEC $19 20k
NOV $21k 78k
NOV $20 35k
NOV $19 12k
691,000 contracts = 69,100,000 shares
Early exercise could also be to cover short shares to avoid paying the dividend and exit the short position.
Contract volume could be
churn from same day buy sell
early exercise for just capturing the dividend (arbitrage as I described it)
early exercise for short covering (lots of shares acquired without moving price up)
exit path for the arbitraging.
retail investors buying the cheap calls
retail investors selling covered calls
sigh ....
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"..They will exercise the deep calls today and own shares for the dividend. "
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in that case the open interest next week should stay around the same as today or it will not increased by much...
will be interesting to see -
Ok, I guess, hence when the little man (me) always loses when we up against someone who cheats right in front of the ref...
Sentiment: Strong Buy
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