John Olagues

COP Report Advocates Propping Up Zombie Banks: Not Good

Linus;

Thanks for the insightful article.

Please permit me to post this article and the referenced papers on my LinkIn Group site.

Keep up the good work.

John Olagues

Commodities, Global Markets

I fail to see how any of the charts can be helpful in predicting future market prices. The charts merely show what happened in the past.

The only thing that can be predicted is that markets will be manipulated by those who control them. So unless you are on the inside, you're merely guessing and essentially hoping that you're going the way of the manipulators.

John

How Treasury Favors Banks over Taxpayers in Warrant Negotiations

I would say that in all probability everyone of the banks that accepted TARP money needed and wanted the TARP funds. For example Goldman Sachs accepted $10 Billion when just weeks earlier they accepted $5 Billion from Warren Buffett where GS gave him 45 million warrants and 10% interest on the Warrants. That deal was far more onerous to GS than the TARP money.

The banks are probably borrowing from the FED at 1/2 % and paying off the TARP money which requires 5% and are trying to buy back the warrants for 50% of their value.

Perhaps executives like those at JPM who received $85 Million of SARs and Restricted stock in January 2009 which is now valued at $175 million should forfeit 50% of their gains back to JPM. JPM would be able to pay off the Treasury at its contractual value instead of begging for more subsidies from the Treasury.
John

How Treasury Favors Banks over Taxpayers in Warrant Negotiations

I believe that Linus is correct in general. But I believe he is too kind to those criminal bankers on welfare. My general observation is that their theft is far greater than he estimates.

Its really sad that the commentators (except "no money mo"...) are so ignorant of how options and warrants work and have the nerve to be critical of someone that is trying to shed some light on the subject.

I actually believe no one can be as stupid as the top six commentators and that leaves only one answer to why they spew such drivel. They are shills for criminals.

I am certain that none of the first six commentators have the ability to understand, analyze or value a warrant or a stock option.

john Olagues

Taxpayers Will Benefit from JPMorgan's Exit from TARP

In March and April , 2008 J.P. Morgan bought Bear Stearns with $55 Billion in Bail Outs to J.P. Morgan. The $55 Billion consisted of two loan facilities from the New York FED. One was a $25 Billion loan to Bear Stearns and another was a $30 Billion loan to JPMorgan. Both were collateralized solely by Bear Stearns assets of dubious quality. $29 Billion of the $30 Billion was a non recourse loan to JPM from the New York Federal Reserve Bank.

During the entire time, Jamie Dimon was on the Board of Directors of the NY FED and is still there today. He is of course the CEO of JPM.

His actions are subject to Title 18 section 208 USC which makes his decisions vis-a-vis the NY FEDs granting those bail out funds to JPM a felony. Just because he hasn't been charged with the crime doesn't lessen the fact that he did it.

Now we find that Dimon is negotiating with the FED and Treasury for a bargain on the warrant re-purchase, while he sits as Director of the NY FED, again a felony under Title 18 section 208.

Where is the FBI and why won't they enforce the law against Dimon.

On Jan 20, 2009 executives of JPM received enormous equity compensation far greater than the amounts alleged to be paid the executives at AIG or Merrill. The value of the equity to the top 15 at the day of grant was over $80 million, which now has a street value of over twice that much as of June 2, 2009.

Dimon himself "bought" over 4 million shares when the stock was in the neighborhood of 20 (now 36). He did not want to show it as an equity grant so the equity position shows as a "purchase". My speculation is that the "purchase" was with a low interest, non-recourse loan from JPM, which essentially is a grant of options.

Can't everyone see that these are merely hogs feeding at the trough, unrestricted by "law enforcement".

John Olagues

Friday's Options Recap

Frederick;

What would you say to an executive who wanted to hedge his employee stock options by listed selling calls and buying listed puts?
John

Treasury Accepts Lowball Price for TARP Warrants

Linus;

As you know, the "fair value" of those warrants can be calculated quite precisely using theoretical pricing models.

Given the extreme recent historical and implied volatilities of the banks, the warrants "fair value" are very high. I am certain that the Treasury, under criminals like Geithner will not receive anything near "fair value". If the Treasury wants to sell their warrants to third parties, I am certain that the third parties will get great buys as they can immediately sell listed calls and short stock and hedge away most of the risk and pocket high theoretical advantages.

But I am confidant that the third party buyers will be friends of Geithner and Dimon and Paulson and Bernanke and other errand boys.

Please ignore the "comments" of the banking shills who seems to immediately rise when their darlings are spotlighted.

John Olagues

Goldman Sachs' TARP Went to Buffett

Comment to Linus Wilson:
Below is a sentence from the GS 10K referring to a reduction of the warrants by half if GS raises $10 Billion.

" If, on or prior to December 31, 2009, the firm receives aggregate gross cash proceeds of at least $10 billion from sales of Tier 1 qualifying perpetual preferred stock or common stock, the number of shares of common stock issuable upon exercise of the warrant will be reduced by one-half of the original number of shares of common stock."

My estimate was that Goldman would raise the $10 Billion prior to Dec 31, 2009. So I assigned a 69% probability to the event thereby arriving at the expected number of warrants to be 8 million, rather than 12.1. But the value each of the 8 million expected warrants are higher now with the stock much higher (98 to 123). However, Buffet's warrants are less valuable now that he has lost some time value to erosion and the stock is a bit lower that when he received the warrants.

If Goldman Repays, Where Does That Leave Regulatory Reform?

Where can I find the exact specifics of the deal between the Treasury and Goldman on the $10 Billion in exchange for warrants and 5% preferred. By exact specifics I mean the price of the GS stock when the deals began, the terms at which Goldman may terminate prematurely etc. I want to compare it with the deal that Buffet got with his $5 billion.

John Olagues

Banker CEOs Lied to Congress

I am not a journalist. I was an options market maker on the CBOE and on what was once the Pacific Stock Exchange in San Francisco for 5 years each.

I personally traded and maintained some of the largest positions of anyone who worked on those exchanges.

Employee stock options and other forms of equity compensation are not too different from exchange traded stock and options, although there are certainly some differences.

In 2006 The SEC and FASB required that companies account for their options and other hybrid forms of equity compensation in a manner that they felt appropriate. My calculations are consistent with their suggested methods.

The values that I outlined are certainly higher than their values now because the stocks are much lower.

However, those executives surely understood the true financial status of their companies far better than you or I and probably made short sales, sold calls and bought puts on a basket of stocks highly correlated with their own companies. Perhaps they even "parked" short sales in their own companies in the accounts of colleges and still maintain those short sales.

Knowing what I know, I would say its highly probable that they did make such short sales to hedge their grants. But they did it in a manner disguised from the public.

So the father those options are out of the money the better, from the view of those who hedged their grants.

Good luck

John Olagues

Time to Buy Bank Stocks

Why would anyone want to buy stocks of banks which are insolvent and who pay their executives hundreds of millions for failure.
See :

www.optionsforemployee...

Cheers:

John Olagues

Naked Shorting Comes Full Circle

I read Bill Cara's article and some of the comments and thought I would enter the discussion a bit.

I was a market maker on the CBOE for 5 years from 1980 to 1985 and a short stint in 1989. I also was a market maker on the PSE options exchange from 1976 to 1980. These were the early days when most market makers were sole proprietors and small groups. Money could be made by hard working tough minded traders would took risks, understood theoretical pricing models and used strategies consistent with buying what they thought were under-priced options and selling what they thought were over priced options.

I probably traded and held the largest positions that the rules allowed at that time in several widely traded stocks

In the early 80's there were cases of insider trading using the options markets. The victims of these insiders were generally the options market makers. The SEC prosecuted such notables as Michael Milken, Ivan Boesky and Michael Levine and that put a damper on the more obvious form of illegal insider trading.

However that just meant that the illegal insider traders were required to be more subtle about their theft. Rather that buy 2000 out of the money call contracts just prior to the announced take-over, the illegal traders would then (and still do) buy a bullish vertical call spread or a straddle or some combination of trades that would profit handsomely while having a built in explanation for their lucky situation just prior to the announcement.

Now matters have changed. Options position limits are 100 times as large and the Wallmarts have run the corner stores out of business. For example the Designated Primary Market Maker in Bear Stearns options at the CBOE is Citigroup. There are no sole props. operating as OMMs.

So these Options trading firms are capitalized with billions of dollars and do have the ability to force both the options and the stocks to positions to their liking.

These firms also have the ability to get and use illegal inside information against the public and opposing professional traders. And yes, they use the advance information. Please do not believe the idea that because a trader works for Citigroup or Goldman or Morgan that he must be a great trader. Most success that these traders have be they market makers or hedge fund managers is because they cheat. And the forms of cheating become more subtle every day.

Selling calls or buying puts have similarities with the short sale of stock. And the person selling puts to or buying calls from these illegal insiders do try to hedge those long positions by shorting stock or buying other puts or selling other calls. But often the good faith sellers of puts are not able to hedge and are left holding the "Bag".
But it is not the case that all sales of puts are completely hedged because that is impossible.

In the case of the Bear Stearns/J.P. Morgan Bail out, I do not believe that naked short selling is what collapsed the company. The short selling and put buying was done by insiders who knew the stock was going to collapse because of collusion between J.P. Morgan the FED and the inside traders, who planned the collapse in advance.

John

Backroom Bear Stearns Deal Exposed

Referring to nukldrager's quote from "Sympathy for the Devil", he hit the nail on the head.

The Bear Stearns/J.P. Morgan deal was cooked up months before the crash on March 14, 2008. In the last days there was panic buying of puts by people who found out about the 2 dollar deal several days before the crash on March 14.

The BSC/JPM deal was done by the same people who killed the Tsar , who made damn sure that Pilate washed his hands and sealed Christ's fate, who killed the Kennedys, and rode a tank in Hitler's generals rank.

What's my name? what's the nature of my game?

Countrywide CEO Gets Lucky Grantitis

Mozilo pocketed over $355,000,000.00 over the past 2 1/2 years by exercising options (much with exercise prices at $5.70) and selling stock in the $40's and high 30 s.

He may have even topped Terry Semel who grabbed over $500,000,000 for being head Ya(ho) at Yahoo! since 2001.

Mozilo could be sued for a 16b violations and made to disgorge $20-30 million in my view, but there are exemptions granted him by the SEC, which have been expanded by the courts so that 16 b may be dead.

John Olagues

Google Sell-Off Offers Opportunity

Tate:

You mention a figure of 3.56 earnings per share ( if you take out costs of employee stock compensation). In 2006 Google employees and executives exercised 8,128,000 Employee stock options when the average weighted exercise price was $66. The average price of Google shares during 2006 was $424 making it such that employees and executives took home about 2.9 billion. This 2.9 billion was written off from Google's income for tax purposes, whereas Google reported a 393 million expenses (artificially understated) against earnings for their stock options costs.

So Google made 3.56 if you don't count the the FASB required "Fair Value" costs and certainly not the actual costs. If you counted the actual costs, Google has no earnings at all.

John