Akahele - Judd Bagley, Weighing the options Options

[Kato]

Weighing the options

My direct involvement notwithstanding, I feel it’s both fair and accurate to say that the events surrounding the Gary Weiss/Mantanmoreland affair were among the strangest and most polarizing in Wikipedia’s history.

[One]

Reading analysis about this, I see that some commentators dismissed the out-of-the-money puts as insider information of Bear Stearns (presumably real) liquidity problems. I really doubt that. Demanding that the options board open a new series is a terrible way to reap insider profit; might as well personally demand that the SEC investigate you. Much better for insiders to use the most commonly-traded contracts in order to blend in; they'd still make a killing on that drop, and much less likely that they would get subpoenas.

It's a great way to help spread rumors though. *whisper whisper...* "liquidity problems, you say? Why, yes, those $30 puts did make me suspicious."

This post has been edited by One: Tue 31st March 2009, 7:55pm

[WordBomb]

Reading analysis about this, I see that some commentators dismissed the out-of-the-money puts as insider information of Bear Stearns (presumably real) liquidity problems. I really doubt that. Demanding that the options board open a new series is a terrible way to reap insider profit; might as well personally demand that the SEC investigate you. Much better for insiders to use the most commonly-traded contracts in order to blend in; they'd still make a killing on that drop, and much less likely that they would get subpoenas.

It's a great way to help spread rumors though. *whisper whisper...* "liquidity problems, you say? Why, yes, those $30 puts did make me suspicious."

The only problem with that, in the case of Bear, is that the first reporting on the puts didn't happen until three days later, on 3/14/08. Although it's true that's not to say that others didn't notice it on their terminals beforehand.

One interesting counter-theory I've heard, which seeks to explain the relationship between the puts and the fails, is that the puts somehow triggered wild programmed short selling.

I don't know nearly enough about computerized trading (other than I thought it was severely limited after the crash of 1987) to opine on that one way or another.