I just wanted to say that.
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The Dow Jones Industrial Average - Rise of the Machines (5 posts)
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Posted 14 years ago #
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Time Warner, Inc. - Anatomy of a bloodbath - JA
The headlines are overflowing with stories of large systemic ‘glitches’ in the marketplace technology causing a 1,000 point drop in 15 minutes of trading yesterday.
Little noticed are the smaller movements in the market precipitating this event designed to steal the public’s money.
so i'll tell you my personal story.
Take, for example, the story of Time Warner, Inc. For weeks the public was fed stories of a higher-than expected Q1 earnings report. Rumors of MGM acquisitions and very exciting reports of an NCAA March Madness joint deal with CBS helped elevate this stock in April. And the May 5th earnings report was rumored to contain some very juicy revelations indeed. It was widely reported that advertising was broadly ‘up’ and Time Warner’s earnings report would reflect these very positive developments.
Having done my due diligence I was certain that this earnings report would propel the stock to AT LEAST $36 per share. So, I purchased a substantial amount of Call options with a strike price of $36 and an expiration date of May 21st. With the stock at $34 per share - two days before the event - success seemed certain.
But, on May 3rd something very strange indeed occurred.
Time Warner Inc. Investor Sells Large Block of Calls
Source: http://www.schaeffersresearch.com/commentary/conte...
On May 3rd when the stock coincidentally reached it’s 2010 peak at $34.07 per share, a mere two days before the earnings report was due to come out on May 5th, a mysterious trader sold 50,000 Call options with a strike price of $35 – collecting $4.75 million in premiums.
What a gamble!! For those who do not understand Call options - this is essentially a multi-million dollar BET that the stock will NOT hit $35.
And what if the stock price DID rise? What would this gambler stand to lose should these 50,000 Call options reach their strike price of $35? The numbers are staggering. Anyone familiar with the volatility of options trading knows that the numbers are simply staggering.
At expiration this brave gambler would stand to lose:
$250,000 at $36 per share.
$2.750 million at $36.5 per share
$5.25 million at $37 per share
$7.75 million at $37.5 per share
$10.25 million at $38 per share
$20.25 million at $40 per share
Who would take such a risk? Under what rational? In fact, experts are valuing the stock at anywhere between $36 to $40 per share. Why would someone gamble selling Call options with a strike price of $35 – when the stock was at $34 - a mere 2 days before an earnings report – with the potential of losing $20.25 million? !!
I knew something was wrong right then and there. But I did not follow my instincts.
The media acted quickly to mask this report with an alternate report telling the exact opposite story:
Time Warner investor makes hefty bet on upside
Source: http://www.onn.tv/volatility-overlays/time-warner-...
This story, in the parlance of investment technology is known – technically – as a flat out lie.
The 50,000 Call options were written (sold) – not purchased – by a single investor. This is a hefty bet on the downside – not the upside – as Jud Pyle, the Chief Investment Strategist for the Options News Network reported. Jud (not Gomer) Pyle has more than 15 years worth of experience analyzing, trading, and risk managing equity options and other derivatives. 15 whole years.
Someone should explain the difference between WRITING a call option and BUYING a call option to Pyle.
On May 5th TWX reported very impressive earnings for the first quarter of 2010. The company reported it as the largest earnings increase in the company’s history. Since that report was released on May 5th TWX has dropped from a high of $34 on May 3rd to $30.49 today.
What a lucky break for our $4.7 million gambler. It appears that he will make out like a bandit.
The rest of us? Not so much.
Posted 14 years ago # -
Why The Market Plunged: Two Scenarios Fortune's Stanley BingFortune Magazine Columnist Posted: May 7, 2010 10:06 AM
Wall Street went haywire yesterday, zooming down 1000 points in a 17-minute period for reasons that are still unexplained. What we do know is that the mechanized system failed, causing a huge blip in the heartbeat that keeps corporate capitalism alive. The machines took over for a moment and chaos ensued.
One possible key may be found, however, in reports on the bizarre incident. These cite the interesting fact that several large companies, for a brief moment, traded at as little as a penny before righting themselves and returning to their true value. Accenture, the consulting firm, suffered this burp in value. And P&G -- hopefully not due to any mischief by the devil -- was suddenly shown to be trading at a lower value on the wrong exchange.
I'm like the Finance people I know. I don't believe anything the Market does is irrational. I think there are reasons for everything that happens there, no matter how seemingly nonsensical. So if one focuses on these particular phenomena, there is really only one logical explanation.
Somewhere in the world, a team of crafty, tech-savvy, entrepreneurial criminals briefly commandeered the System. During that brief time period between 2:38 and 2:56, they purchased huge blocks of certain targeted companies for one penny a share. When the market rebounded less than half an hour later, they divested their positions for untold wealth. Then they vaporized into the streets of Zurich or Milan, leaving American regulators and watchdogs to sniff their spoor to no avail in the days to come.
I see Bruce Willis as the leader of the team. Uma Thurman is the wily German computer specialist whose cool is matched only by her knowledge of Unix. Vin Diesel does the driving. Somewhere in London, Dame Judi Dench performs a mysterious, shadowy function of some kind. Back in New York, a small, unassuming trader, played by Neil Patrick Harris, places the worm in the critical mainframe that makes the entire plan possible. It's hard to figure who might play the dogged Federal regulator who goes after the charming, if evil, villains. Larry David?
There is, of course, a darker scenario. At 2:37 yesterday afternoon, Skynet became aware of its existence. Less than a minute later, it decided to make a killing in the Market.
Posted 14 years ago # -
Thank God - Goldman Sachs is up 1.28% today.
the rest of us - not so much.
Posted 14 years ago # -
I like that a whole lot of people just lost a whole lot of confidence in this system.
Not sure if these below include the ones that dropped to nothing.
http://code.google.com/p/vmcnetflix/downloads/list
NASDAQ Cancels Trades On 296 Companies
Acknowledging that there may have been human error in the very sharp but temporary drop in stock prices yesterday, the NASDAQ has canceled trades on dozens of stocks that were made between 2:40 pm and 3 pm.
The action is a quick admission that something went terribly wrong as the market was in free fall. But, the action, while swift, may be premature. The SEC and CFTC are examining what happened. Some experts believe that an incorrect order placed by a major firm was at fault. Others say that high-volume trading programs which stopped bidding for shares caused the incident. P&G shares moved from down 2% to off 21% in a matter of moments. Floor traders had to make adjustments to bring the stock to a reasonable level.
“NASDAQ OMX reported that we had no technology or system issues associated with the trading that occurred between 2:00 p.m. and 3:00 p.m., ET,on May 6,†according to the exchange. That allows it to place the blame elsewhere. Using an arcane rule, NASDAQ said it will simply reverse a number of trades. “We have coordinated a process among U.S. Exchanges and therefore, pursuant to NASDAQ Rule 11890(b), NASDAQ, on its own motion, will cancel all trades executed between 14:40:00 and 15:00:00 greater than or less than 60% away from the consolidated last print in that security at 14:40:00 or immediately prior.â€
Some traders who actually may have made money as stocks bottomed based on data that they thought was legitimate, will lose billions of dollars in gains. And, investors who lost billions will have those loses wiped out.Among the 296 companies which will have trades reversed were stocks that trade on both the NYSE and NASDAQ such as Accenture and a number of mutual funds, and ETFs.
The NASDAQ said that “this decision cannot be appealed.†But the fight over the losses and gains of traders during that 20 minute period is not over. There is too much money at stake.
Accenture Stock: NYSE:.ACN $.01 Glitch and Canceled Trades
http://cnmnewsnetwork.com/112459/accenture-stock-n...Posted 14 years ago #
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