Of course it looks suspicious. And it always is suspicious. And where there’s smoke there’s fire. But thats the game. It’s easy to criticize from the outside, especially if you have a government job, employment security, and iron-clad pension. The worry-free existence that makes the American Dream. But this is another world and its often ugly. Big money is made. And lost. Nexen is the latest example where trading in bullish Nexen options peaked at the highest level since stock market peak of ’08 those frothy old day or irrational exuberance; when today Chinese company Cnooc Ltd. announced it would buy the energy company. There were three trades alone that netted over $40 million.
The timing of those transactions put the spotlight on the fine line between honest speculation which usually fuels action in the options markets and trading by sources in the know about the deal. In this case the timing and amplitude of the trades indicated a “sure thing.”
—Short seller Carson Block’s negative views on Sino-Forest Corp. are unchanged after the company finally took questions from the public on its earnings call on Tuesday morning.
The stock fell more than 12% Tuesday despite Sino’s efforts to forcefully reject the accusations from Mr. Block’s firm Muddy Waters LLC.
“The selloff in Sino-Forest shares this morning illustrates our overall feelings about management’s responses to questions,” Mr. Block said in a statement.
On the conference call, Sino-Forest said that it will take at least two to three months for its independent committee to complete an investigation into allegations of fraud by Mr. Block, and the company indicated on a conference call that it does not plan to release piecemeal information before that point.
Mr. Block responded by suggesting that this is an “aggressive” timeline based on his experience with smaller companies. Read More:http://business.financialpost.com/2011/06/14/sino-forest-investigation-to-take-up-to-three-months/
(Reuters) – A number of large, well-timed bullish bets in the options of Canadian oil producer Nexen ahead of a takeover deal announced Monday has raised eyebrows among some options market watchers, who said the activity could draw the eye of U.S. securities regulators.
State-controlled CNOOC Ltd launched one of China’s richest takeover bids yet by agreeing to buy Nexen Inc for $15.1 billion.
—Federal authorities cast further doubt on Tuesday about the integrity of a benchmark interest rate that is the subject of a growing investigation into wrongdoing at big banks around the globe….In separate testimony before the Senate Banking Committee, Ben S. Bernanke, the Federal Reserve chairman, said he lacked “full confidence” in the accuracy of the rate-setting process.Read More:http://dealbook.nytimes.com/2012/07/18/morning-take-out-528/
All told, the bets in question would have reaped a windfall of more than $30 million in paper profits, said Trade Alert President Henry Schwartz.”It appears that the news may have been leaked ahead of time,” Schwartz said. “The size and large block combination trades are certain to be scrutinized by U.S. securities regulators.”
The U.S. Securities and Exchange Commission, which looks into unusual stock and options activity, declined to comment. The activity was related to a bullish options combination known as a risk reversal. These trades were new positions, made in the days ahead of CNOOC’s takeover bid for Nexen, two option participants said.
—Fall of the ‘King of Tokyo’ | Once a high-profile hedge fund manager, Edward Brogan is now “at the center of a probe of insider trading. His Tokyo-based firm Japan Advisory has been closed since regulators imposed a fine and revoked its license at the end of June, Reuters reports.—Image:http://dealbook.nytimes.com/2012/07/18/morning-take-out-528/
The options trade, which was initiated several times, involved the sale of puts to fund the purchase of calls.Read More:http://www.cnbc.com/id/48291800
But again, other news today was Prem Watsa added over 25 million Blackberry shares( RIM) to perhaps pad the woes of an earlier $350 million investment in RI
ares that lost half their value in seven months. For a company in which calculated common sense says is in a death spiral, Watsa is a gutsy caller. Or Carson Block shorting Sino-Forest down to zilch and being proven correct in his analysis on the company’s now totally discredited accounting and reporting system. Or William Ackman’s blitz on C.P. Rail. The list goes on of major risk takers…
ADDENDUM:
“This is probably the most compelling and suspicious order flow I have seen in a takeover in several years,” said Ophir Gottlieb, managing director of options analytics firm Livevol in San Francisco. “Normally insider trading is more hidden so it is less obvious to regulators, and in this case, the trades are extraordinarily large and the timing is quite obvious.”
—An investor bought 23,000 December $19 calls and sold 11,500 December $16 puts on July 20, according to Joe Kunkle, founder of OptionsHawk.com, a Boston-based provider of options market data and analytics. The strategy profits if the shares exceed the higher strike price by expiration and would make a profit of almost $19 million at the $27.50 offer price.
The same strategy was used to buy more than 20,000 September $17 calls while selling September $16 puts on July 16 and July 17 for a potential profit of almost $22 million, Kunkle said.
“The timing, size, and structure of these trades make it appear that this deal was leaked,” Kunkle wrote in an e-mail today. —Read More:http://www.bloomberg.com/news/2012-07-23/nexen-call-volume-hit-four-year-high-before-15-1-billion-buyout.html image:http://donaldsweblog.blogspot.ca/2010/07/on-edge.html
Gottlieb noticed large volume in December Nexen options on Friday. The stock usually trades about 1,500 contracts daily, Livevol data shows, but volume last week far surpassed that.
On Friday roughly 20,000 December $19 strike calls were purchased and funded by a sale of 10,000 December $16 strike puts in a bullish risk reversal for a total cost of $550,000, Gottlieb said. The U.S.-listed shares at the time were below just below $17.
Those puts sold are now worthless and the calls went from 88 cents per contract on Friday to $7.30 during Monday’s trading session, Livevol data showed. That call position is worth about a $14 million gain on Monday, Gottlieb said.Read More:http://www.cnbc.com/id/48291800
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