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Dan McMullin

Dan McMullin
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  • Handicapping The Icahn Position In Herbalife [View article]
    Scott, thank you for digging into and sharing these details of Icahn's accumulations of HLF - fascinating and informative stuff. A few observations:

    1) To exercise the 11.5mm calls (1/28 & then 5/10) wd cost *add'l* investment of about $292mm, b/c the ITM portion has already been paid in the premium.

    2) Options market makers don't speculatively assume the other side of such huge new positions - they "get the edge, then hedge." Meaning, as soon as Icahn bought his millions of ITM calls the effect was *immediately* laid off in the market by the call sellers buying the underlying HLF stock. When Icahn exercises the calls, the counterparties will then transfer to him their long HLF - those shares which have already been purchased in the marketplace. For this reason, I'm not convinced that exercising his millions of ITM calls will create a sudden price spike or subsequent short squeeze.

    3) In your article, you posed the three questions about the role of the OTM puts done at $.01. It was likely a device necessary to get the call-side of the deals done. Adding the put-side turns Icahn's ITM calls into true synthetic longs, which gives the options market makers a way to sell him the calls in such large quantities (i.e. they buy the underlying HLF, as described above). You asked why wd a counterpary do this transaction. The answer is that the call-side contained the slippage in price - the edge needed by the market makers.
    Feb 25, 2013. 12:08 PM | Likes Like |Link to Comment
  • The CFTC Is Needlessly Breaking Good Products [View article]
    Market manipulation can still occur, even though fund buyers don't take delivery. These funds buy the underlying futures contracts, and will continue to hold long via rolling the position. A speculator with a position-limit long can add even more buying pressure via funds.

    Having said that, I agree w/ iknow1, who pointed out that transaction costs and re-balancing issues are a structural flaw of these funds.

    On Aug 23 11:11 AM David Fry wrote:

    > Great point on "delivery" issue.
    Aug 25, 2009. 03:27 PM | Likes Like |Link to Comment