Dan McMullin's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/476894/comments http://seekingalpha.com/article/1217201/comments?source=feed#comment-15479421 15479421
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.]]> Mon, 25 Feb 2013 12:08:12 -0500
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.]]> http://seekingalpha.com/article/157484/comments?source=feed#comment-645885 645885
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.]]> Tue, 25 Aug 2009 15:27:17 -0400
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.]]>