FinancialAdvisor's College Class (FACC)

[QuickTrade]

Were BSC puts bought up by insiders?
http://optionmonster.com/#commentary/in_the_news/were_bsc_puts_bought_up_by_insiders_23549.html

Since it's well known that institutions (and also insider traders) use options because the leverage can provide unbeatable return on investment, a time-honored way to trade is to piggyback the so-called
smart money.

That approach has been newly vindicated by last week's Bear Stearns trading. This morning in the Wall Street Journal (subscription required), we read:

"Some analysts who follow the moves of short sellers, or those who bet against stocks, say a big spike in short positions in recent months suggests that some investors might have been privy to information about the brokerage firm's growing difficulties, or acted more quickly to wager against Bear Stearns compared with other financial companies. The Securities and Exchange Commission is investigating a spike in options contracts before the collapse in Bear stock."

Here at optionMONSTER, we look for unusual activity every day. Thus when we spotted BSC at 70 and put buying the 30 and 35 strikes, we sprung into action. As we wrote:


"What the options are saying now is: if BSC survives for another week through March expiration, the company will be bought. ...Why? The spread [in out-month trading] is just too small. When investors compress the time value, or sell the out-month calls or puts and buy the shorter dated options, they are saying they believe the likelihood of a takeover is high."

The question of whether it was “smart money” or insider trading is one we will leave to the lawyers. But the option actions was there to see, and to profit from, in a nice, legal way.