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by thingylab 4884 days ago
No. If you have a block of shares, there are much better ways to get rid of them. These deals typically take a long time to structure, market and initiate.

Besides, you really don't need a lot of shares to hedge this type of product. You need options that are typically (at least initially) deep-ish out of the money and so have little delta.
2 comments
niggler 4884 days ago
We are talking about positions on the scale of the Knight Capital Group or Rochdale Securities error (both concerning positions much larger than 1B USD), for which purchasing options could not solve the problem (the required options would be far more than options market makers would buy at a reasonable price).

Remember, just because the MM would buy or write one contract doesnt mean they'll buy or write tens or hundreds of thousands of contracts at the price.

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thingylab 4884 days ago
Please re-read my comment. I'm not saying you need options to get rid of a large block of shares.

What I'm saying is that trying to get rid of a lot of shares through $30MM worth of a reconv is very ineficient, if not downright stupid.

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fmstephe 4884 days ago
Could you please elaborate on this comment? Thanks.
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niggler 4884 days ago
If you had a long position of 100 shares, you could reduce your risk exposure buy selling a call option or buying a put option. (each contract has a notional exposure of 100 shares)

Buying a put option requires an upfront payment but you will receive money if the price falls below a specified price (the "strike price"). On the other hand, you receive money when selling a call option but may have to pay later (or hand over your shares) if the stock price jumps above the strike.

The problem is that this mechanism only works because there's a counterparty willing to do the trade. You can see the option premium (cost) for a variety of strikes on most financial sites (e.g. https://www.google.com/finance/option_chain?q=NASDAQ%3AAAPL)

As more people buy put options, the price of the put option goes up. As more people sell calls, the price of the call option goes down. If you have a small position (say, 1000 shares), your trade wont move the options market much, but if you have a large position your trades will affect the market makers (they also have a book and are looking to reduce their exposures profitably as well)

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