Case closed in Getronics for All Options
Many traders will remember the great trade in Getronics options early 2005. A smart fella found a loophole in Euronext’s Corporate Actions Policy with regard to a reverse stock split in penny stock Getronics.
Contract size 12
Some options existed with a tiny block size of 12, called the GTO (Getronics Old) class. A left-over of an earlier claim issue. In a 7-1 reverse stock split the exercise prices would be adjusted as well as the block size. And 12 divided by 7 gives 1,7 – and was rounded up to an underlying block size of 2. This made a lot of difference on the price levels of especially the deep in-the-money puts.
Iain did his homework
Iain Somers did his homework, checked the rules and bought a pack. Rest of the market realized what was going on and started buying too. There was only one firm selling to the rest of the market. All Options reasoned an option could never be worth more than parity. Well, it can. Sold 71.000 puts and lost 2.5 million. After years and years of procedures between Euronext and All Options the show has come to an end now. At first court ruled in favor of Euronext, then a little bit of both and finally Euronext won.
Different legal world
Apart from the loss on the trade, the costs for lawyers will have been very high. It’s not very complicated stuff for insiders, but that doesn’t count for the rest of the world. The final (Dutch) ruling doesn’t really get the essence of delta neutral trading or the difference between calls and puts I guess :
“4.3 All Options heeft (voor eigen rekening) opties zoals hierboven bedoeld geschreven en verkocht. Hiertegenover hield zij geen aandelen in Getronics die, bij uitoefening van de opties, aan de rechthebbende konden worden geleverd.”
The court is confused. It says All Options sold the options, and All Options didn’t hedge it with a long stock position in Getronics. Stocks which could be delivered to the owner of the options on assignment. Back to school, dear judge. You don’t sell puts and hedge it with long stocks. Court confuses calls with puts. Quite basic stuff. This confusion doesn’t really have an impact on the course of events ; but it’s strange anyway.
Nice of “Jack” to blow his own horn. Smart fella.
haha .. bit of narcissism in every one of us ..
Maybe good escape for drug dealers: “No judge I didn’t buy any drugs from a Colombian party, I just sold them the right to sell it.” Judge: “huh, Okay, no problem then”.
Lol, i dont think Jack=Iain. But if anyone wants a small bet about it, i think the real jack will clarify this.
Here we go again with small timers in Amsterdam, guys come on, think big sometime, enough with this small size scalping ..
‘Judge: “huh, Okay, no problem then”.’
Kindly don’t assume people in general are smart .. and the financial jargon or derivatives Greeks don’t help either .. also they think all those dealing with these sophisticated financial instruments are making free money at their expense .. so it becomes more of a biased opinion then a mathematical fact ..
How can you reason that an option can never be worth more than parity? It is UNDER parity (strictly intrinsic) that is the arbitrage bound. What if the call has value, then the put must trade above intrinsic. AO thought they were selling expensive premium but it was really shit.
what he means with parity is the strike price. the puts shouldn’t be trading for more than the strike price, but they did
Maybe good escape for drug dealers: “No judge I didn’t buy any drugs from a Colombian party, I just sold them the right to sell it.” Judge: “huh, Okay, no problem then”.
God damn it, we need Like buttons for comments! Top hat this one!