PLAY THE $UCKING DAILY ONE MINUTE TAPE OF THIS FRAUD DAILY TRADING ON ALL USA MEDIA SHILL TV NETWORKS AND SEE FOR YOURSELF WHAT FRAUD PRICE/
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Who Is Doing What To Whom On Carl Icahn’s Netflix Trades?
So like I said those were warm-ups; the real question is: why do this? Why not just buy stock? The answer that I started with – leverage! volatility! – is plainly nonsense: you can’t rely on any explanation that assumes a customer, even a savvy customer like Icahn, is systematically and predictably taking advantage of a derivatives dealer.6 Selling naked call options to a corporate raider is awesomely dumb – Icahn can ruin you with one press release! – so nobody would do it. All that Icahn’s done is buy the stock forward.
So why buy it forward? The answer is super boring, I think. It seems likely that Icahn works this way to avoid HSR filings: the antitrust laws require you to file forms, pay fees, alert the company, and maybe get public disclosure if you’re going to buy more than $68.2 million of Netflix stock. That sucks; it costs time and money and alerts the company when you’ve bought only $60ish million, rather than $300ish million, of their stock. If you want to buy cheap and profit from your press release, rather than buy expensively after the stock has already priced in your interest, avoiding HSR is economically important. And buying via options lets you do so.7 [Update: a reader points out that, if you multiply Icahn's 1.25mm physical shares by the $54.74 purchase price listed for the last of them, you get ~$68.4mm, or right up against the HSR threshold, further evidence that Icahn's tactics are driven by HSR. He also points out that Whitney Tilson takes the contrary "very bullish, leveraged bet" view.]
So there’s your boring answer: Icahn didn’t get long Netflix to take advantage of his dealer’s stupidity, but to take advantage of his dealer’s HSR exemption. Now, here are some extra-credit questions. Theoretically the put + call are delta one, so the dealer should hedge by buying 100% of the underlying stock, or ~4.3 million shares. So:
If you were doing this trade with Carl Icahn, would you initially “hedge” by buying, say, 110% of the underlying stock, and then sell down after he files his 13-D and announces his position?
Would overhedging like that constitute insider trading? Why or why not?
Did his dealer do that here?
If the dealer(s) had done that, and sold at today’s closing price, they made ~$4 million today, or ~$8 million total if they put on the trade at ~$59 a week ago.